Cement

After gaining momentum in June, cement demand weakened in the first two months of Q2FY21E with July and August witnessing volume de-growth of 13% and 15% YoY, respectively. We believe this would have been dragged mainly by the western and southern region as heavy monsoons and extended localised lockdowns may have impacted demand in these regions. On the other hand, healthy demand is being seen in the north, east and central regions. Our interaction with the dealer network indicates likely 7% YoY growth in volume offtake in September leading to total sales volume of 72 MT for Q2FY21E (down 7% YoY, up 35.5% QoQ) at all-India level. With this development, the overall negative impact for the sector and at the company level is expected to remain lower than estimated previously. The major demand driving force has been the rural and semi-urban segments, which kept the demand momentum pretty strong as it has been least impacted by Covid while urban construction activities continued to remain weak during the first two months of Q2 due to labour migration and an extended lockdown. Overall, for Q2FY21E, our I-direct cement coverage universe is expected to report volume growth of ~3% YoY, 31.3% QoQ in sales volume to 44.2 MT.

EBITDA/t to improve YoY despite rise in cost of production

Average diesel prices are up 12% both YoY and QoQ. This is expected to lead to rise in freight cost by Rs. 60/tonne. Also, petcoke prices inched up 25% QoQ, leading to further cost impact of Rs. 80-90/tonne during the quarter as its full impact would be visible with the lag of a quarter. On the other hand, we expect the cost rationalisation drive initiated in Q1 to keep overall cost of production under check. Also, cement prices despite QoQ correction are up 2.7% YoY. This would lead to EBITDA/tonne growth 15.7% YoY to Rs. 1,169/t for our entire coverage universe.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Cement_Q2FY21.pdf

Source : Equity Bulls

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