Cement - Yet another strong quarter; upgrades to continue - ICICI Securities

After posting 40% YoY EBITDA growth during Q2FY21, companies under our coverage are likely to post strong 31% YoY EBITDA growth during Q3FY21 led by 8% YoY volume growth with average EBITDA/te rising 21% YoY (Rs191/te) to Rs1,096/te. Realisations are likely to decline 2.7% QoQ (Rs129/te) though it would still be up 3% YoY (Rs141/te). Similarly, total cost/te may rise 1.8% QoQ (Rs70/te), but would still be down 1.5% YoY (Rs50/te). Key trigger to watch out for: seasonal price hikes that usually start in mid-January as peak construction period sets in and also necessitated by cost escalations this time. We remain optimistic about the imminent price hikes and see an upside risk to consensus estimates. SRCM and UTCEM remain our top picks. We also like ACEM, JKCE and TRCL.

- Industry volumes expected to grow 6% YoY during Q3FY21E to 91mnte (our estimate) with pan-India utilisation at ~75%. Overall, North, Central and East are likely to see >10% YoY growth during Q3FY21 while we expect South to post 7-8% YoY decline and West to be broadly flat YoY. JKCE and SRCM are likely to see strong volume growth of 23% YoY and 15% YoY respectively. UTCEM / DALBHARA / ACEM may report 7-11% YoY growth while TRCL / ICEM / ORCMNT volumes may shrink by 6-10% YoY. ACC / PRSMJ / HEIM may see low single-digit YoY volume growth.

- Average pan-India prices up 5-6% YoY during Q3FY21 led by 18% YoY rise in South and 4-8% YoY increase in West, North and Central regions while prices in East were down 4% YoY. On a QoQ basis, average pan-India prices are likely down ~3% QoQ led by ~4% QoQ correction in South, West and East, while prices in North and Central regions were almost flat QoQ.

- Average EBITDA/te may rise 21% YoY (Rs191/te) / decline 16% QoQ (Rs201/te) to Rs1,096/te for our coverage universe. Overall cost/te is likely to be up 1-2% QoQ owing to higher petcoke / coal prices though it would still be down ~1.5% YoY owing to various cost efficiencies and fixed-cost rationalisation. TRCL / ORCMNT may see strong 90% YoY EBITDA growth; while JKCE, PRSMJ, DALBHARA and ICEM may see 40-50% YoY EBITDA growth. We expect EBITDA growth for UTCEM, ACEM and ACC at 25-30% YoY and that for SRCM at 18% YoY. SRCM and TRCL are likely to lead with EBITDA/te of ~Rs1,400/te while JKCE may report blended EBITDA/te of Rs1,250/te. UTCEM, ACEM and DALBHARA may report EBITDA/te of Rs1,000-1,150/te. With improving VSF prices, standalone Grasim is likely to see strong >40% YoY EBITDA growth. UTCEM and JKCE would be our Q3FY21 results picks.

Company-wise key highlights of Q3FY21

- UTCEM's India operations EBITDA likely to increase 28% YoY at Rs26.2bn. Grey cement volumes for India operations may increase 12% YoY at 22mnte. India operations EBITDA/te is likely to be up 15% YoY to Rs1,168/te. We also expect consolidated EBITDA to increase 27% YoY to Rs26.8bn with blended EBITDA/te rise of 14% YoY to Rs1,148/te.

- SRCM's standalone EBITDA is expected to increase 18% YoY to Rs10bn due to 16% YoY increase in volumes. Blended realisation is likely to decline 2.1% QoQ / 0.7% YoY owing to weak pricing in East.

- ACEM's standalone EBITDA is estimated to be up 29% YoY to Rs7.1bn. We expect ~4% YoY increase in cement realisation and 7% YoY increase in volumes with 2% YoY decline in cost/te. We expect ACEM to report consolidated revenue / EBITDA / PAT of Rs74bn / Rs14bn / Rs6bn respectively.

- ACC's EBITDA is likely to increase 26% YoY to Rs6.8bn owing to 2% YoY decline in cost/te and 5% YoY rise in realisation. We expect its volumes to decline ~2% YoY.

- DALBHARA's EBITDA is likely to rise 39% YoY to Rs6.4bn on account of 11% YoY increase in cement volumes and 5% YoY decline in blended cost/te.

- TRCL's EBITDA is expected to expand 91% YoY to Rs3.9bn mainly led by 15% YoY increase in cement realisation. Volumes are estimated to decline 6% YoY.

- ICEM's EBITDA is estimated to increase 50% YoY at Rs2bn mainly due to 7.5% YoY increase in cement realisation partly offset by 9% YoY decline in volumes.

- JKCE's EBITDA is likely to increase 42% YoY to Rs4bn on account of 23% YoY increase in volumes and 4% decline in blended cost/te.

- JKLC's EBITDA is expected to increase 17% YoY at Rs1.8bn owing to 15% YoY increase in volumes. Realisation and cost/te likely to be flat YoY.

- ORCMNT's EBITDA is likely to increase 90% YoY at Rs1bn owing to ~15% YoY increase in realisation partly offset by 10% YoY decline in volumes. Its cost/te is likely to increase 5% YoY.

- PRSMJ's EBITDA is estimated to increase 53% YoY at Rs1.7bn. We expect cement realisation to increase marginally YoY, cement volumes to increase 4% YoY and cement EBITDA/te to be 25% YoY higher at Rs939/te. Consolidated TBK division may see 10% YoY revenue growth with 11% EBITDA margin.

- HEIM's EBITDA is likely to increase 12% YoY at Rs1.3bn owing to ~2% YoY increase in volumes and 3% YoY increase in realisation. Cost/te is expected to increase 1% YoY.

- Grasim's is estimated to report standalone EBITDA increase of 43% YoY to Rs5.9bn owing to improving margins in its core VSF and chemical businesses.

Source : Equity Bulls

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