Cement - Prices hiked as demand improves; upgrades to continue - ICICI Securities

Our channel checks suggest demand remained strong in Mar'21 and likely grew in high single-digit MoM, despite ~5% MoM price hike. Q4FY21 is likely to have seen >20% YoY volume growth, aided by the low base of Mar'20. Dealers suggest prices may be hiked by another Rs15-30/bag across most regions w.e.f. the first week of Apr'21 led by continued strong demand and necessitated by cost escalations (in our view). Historically, prices rose by an average of 9% QoQ in Q1 of every year in three of past four years. Exit-Mar'21 prices are 4% QoQ higher than the Q4FY21 average and, coupled with the announced price hikes, would ensure sustainability of YoY margins in Q1FY22E. Consensus FY22E-FY23E earnings upgrades are likely to continue, given strong demand / prices. SRCM and UTCEM remain our top picks. We also like ACEM, JKCE and TRCL. Key risks: lower demand / prices.

- Industry likely to post all-time high monthly volumes at ~36mnte in Mar'21 implying ~90% pan-India clinker utilisation. Except Andhra Pradesh/Telangana, rest of the regions likely operated near full utilisation. This is despite a few cities experiencing partial restrictions owing to rising Covid cases, transporters' strike in Raipur for first three weeks of Mar'21, and impact of Holi on last week's volumes. FY21E is likely to end with broadly flat volumes YoY, despite 30% YoY decline in Q1FY21.

- Industry may post strong EBITDA growth of >30% YoY in Q4FY21 led by 20-22% YoY volume growth. EBITDA/te may grow ~10% YoY and remain broadly flat QoQ. Q4FY21 variable cost increase of Rs120-130/te QoQ is likely to be offset by better operating leverage and cost efficiencies. Average Q4FY21 pan-India prices are likely to be marginally up by 1% QoQ led by 2% QoQ price increase in East / West regions.

- Average pan-India prices rose 5% MoM (9% YoY) in Mar'21: East region saw maximum price hike of Rs20-25/bag MoM as most companies faced shortages, despite higher influx from South. West / South regions saw Rs15-20/bag MoM increase, while prices in North and Central regions were largely stable MoM after the Rs10-30/bag hike in Feb'21. On a YoY basis, Mar'21 prices were sharply up 17% in South, 12% in West, 8% in North, and 3% in Central and East regions.

- Further price hikes announced for Apr'21. Dealers indicate companies have announced price hike of Rs30/bag in Rajasthan, Rs20/bag in Maharashtra and Rs15/bag in most other parts of the country w.e.f. the first week of Apr'21 Historically, prices rose by an average of 9% QoQ in Q1 of every year in three of past four years. Exit-Mar'21 prices are 4% QoQ higher than the Q4FY21 average and, coupled with the announced price hikes, would ensure sustainability of YoY margins in Q1FY22E.

Source : Equity Bulls

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