Cement - Resilient quarter; consensus upgrades to continue - ICICI Securities

With Sep'20 posting sharp uptick in volumes, management as well as consensus commentary on FY21E demand outlook is likely to turn incrementally positive. Overall, the industry may see 1-2% YoY growth during Q2FY21E with North, Central and East regions growing 7-9% YoY with South and West still down 12-14% YoY. Our coverage universe is likely to post strong 22% YoY EBITDA growth. Given weak exit pricing due to monsoon and mounting cost escalations, companies have announced price hikes of Rs10-30/bag across most regions w.e.f. Oct'20. We maintain our positive stance and see an upside risk to consensus estimates. SRCM and UTCEM remain our top picks. We also like ACEM, JKCE and TRCL.

- Coverage universe to see ~5% YoY volume growth during Q2FY21E: Though Jul-Aug'20 volumes likely declined in mid-single digit YoY; Sep'20 saw sharp ~20% MoM / >10% YoY growth. While rural and semi-urban housing demand continues to drive growth, pick-up in government-led infrastructure / low-cost housing aided growth in Sep'20. SRCM and JKCE are likely to see strong volume growth of 15% YoY and 25% YoY respectively. UTCEM/ ACEM/ DALBHARA may report 6% YoY growth with PRSMJ/HEIM likely to report 3-4% YoY growth. TRCL/ ACC may report flat volumes YoY; while ICEM/ ORCMNT volumes may shrink by 16-22% YoY. Pent-up urban demand and non-trade demand, especially in South and West regions should improve with gradual return of migrant workers post festive holidays in Nov'20.

- Average pan-India prices up 1-2% YoY/ down 4-5% QoQ in Q2FY21E: Average prices likely declined 2-3% QoQ in West and South, and 4-6% QoQ in North, Central and East regions. On a YoY basis, prices were sharply up 11% in South, 4% in West and almost flat in North, while it declined 5% in East and 2% in Central regions.

- Average EBITDA/te may rise 17% YoY / decline 14% QoQ to Rs1,144/te for our coverage universe. Despite 13% YoY and QoQ increase in diesel prices, total cost/te is likely to decline 4-5% YoY and remain broadly flat QoQ owing to improving efficiencies (resumption of full normal production), fixed cost rationalisation, and better operating leverage. Impact of sharp increase in domestic petcoke prices would start reflecting from Q3FY21E. ACEM, JKCE, TRCL, DALBHARA and ICEM may see EBITDA growth of 30-40% YoY. EBITDA for UTCEM may increase 20% YoY; while that for SRCM and ACC by ~10% YoY. SRCM, TRCL and DALBHARA are likely to lead with EBITDA/te of Rs1,350-1,400/te; while UTCEM, ACEM, JKCE (blended) and HEIM may report EBITDA/te of Rs1,100-1,200/te.

Company-wise key highlights of Q2FY21

- UTCEM's India operations EBITDA likely to increase 19% YoY at Rs22.5bn. Grey cement volumes for India operations may increase 7% YoY at 19mnte. India operations EBITDA/te is likely to be up 11% YoY to Rs1,188/te. Consolidated EBITDA is also likely to increase 20% YoY to Rs23bn with blended EBITDA/te rise of 13% YoY to Rs1,163/te.

- SRCM's standalone EBITDA is expected to increase 9% YoY to Rs9.2bn due to 15% YoY increase in volumes. Blended realisation is likely to decline 3.8% QoQ/ 7.3% YoY owing to lower power sales and weak pricing in East regions.

- ACEM's standalone EBITDA estimated to be up 39% YoY to Rs6.1bn. We expect 1% YoY increase in cement realisation and 6% YoY increase in volumes with ~6% YoY decline in cost/te. We expect ACEM to report consolidated revenue / EBITDA / PAT of Rs61bn / Rs12.4bn / Rs5.6bn, respectively.

- ACC's EBITDA is likely to increase 13% YoY to Rs6.3bn owing to 5% YoY decline in cost/te. Its volumes are likely to decline 2%; while cement realisation likely to grow 2% YoY.

- DALBHARA EBITDA is likely to rise 35% YoY to Rs6.4bn on account of 6% YoY increase in cement volumes and 4.5% increase in realisation.

- TRCL's EBITDA is expected to expand 29% YoY to Rs3.8bn mainly led 7.5% YoY increase in cement realisation. TRCL volumes are estimated to remain flat YoY.

- ICEM's EBITDA is estimated to increase 33% YoY at Rs2bn mainly due ~9% YoY increase in cement realisation partly offset by 22% YoY decline in volumes.

- JKCE's EBITDA is likely to increase 29% YoY to Rs3.3bn on account of 25% YoY increase in volumes partly offset by 2.6% YoY decline in blended realisation.

- JKLC's EBITDA is expected to be flat YoY at Rs1.5bn as 11% YoY increase in volumes and 5% YoY decline in cost/te gets offset by 6% YoY decline in realisation.

- ORCMNT's EBITDA is expected to double YoY at Rs1.1bn owing to ~15% YoY increase in realisation partly offset by 16% YoY decline in volumes. It's cost/te is likely to remain flat YoY.

- PRSMJ's EBITDA is estimated to increase 6% YoY at Rs872mn as EBITDA of cement division will be partly offset by loss in RMC division. We expect cement realisation to decline 3% YoY, while cement volumes to increase 3% YoY; and cement EBITDA/te is likely to increase 32% YoY to Rs810/te.

- HEIM EBITDA is likely to increase 8% YoY at Rs1.3bn owing to ~4% YoY increase in volumes and 2% decline in cost/te. Realisation expected to remain flat YoY.

- Grasim's expected to report standalone EBITDA decline of 36% YoY to Rs4.3bn owing to margin pressure in its core VSF and chemical businesses and poor fixed cost absorption across segments. Both its core businesses are likely to operate at 85-90% utilisation during the quarter.

Source : Equity Bulls

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