Cement - Demand to see sharp bounce back - ICICI Securities

Our channel checks suggest demand in May'21 likely declined in low double digit MoM owing to localised lockdowns, with improvement seen during the second half of May'21. On a YoY basis, May'21 volumes saw low double-digit growth aided by low base. Industry operated at ~65% utilisation (27mnte) with exit-May'21 utilisation crossing 75% and getting back to pre-covid utilisation, in-line with seasonality. With receding covid cases and possible gradual relaxation in lockdowns, construction activities may gain momentum in Jun'21 before monsoon sets in. Average pan-India prices in May'21 were marginally up 1% MoM and 2% YoY and ~6% QoQ which would mitigate the impact of various cost escalations. We maintain our positive stance on the sector with SRCM and UTCEM being our top picks. We also like ACEM, JKCE and TRCL. Key risk: Lower demand / prices.

- Industry volume decline likely restricted to low double digit MoM to ~27mnte in May'21 implying ~65% pan-India clinker utilisation. On a MoM basis, West region likely saw lower MoM fall vs other regions (which likely saw 10-15% MoM fall) with demand in Gujarat remaining almost flat MoM. Demand in West Bengal in East and Tamil Nadu in South was more impacted on a MoM basis owing to localised lockdowns post their elections. On a YoY basis, North, Central and East regions are likely to be broadly flat, while growth during May'21 (and also H1FY22) may be led by West and South regions which were impacted severely last year due to covid lockdown. Dealers suggest infrastructure and urban demand seems better YoY, while rural demand is just sustaining YoY. With receding covid cases and possible gradual relaxation in lockdowns, construction activities in Jun'21 may gain momentum before the monsoon and hence, Jun'21 may report strong volume growth, in our view.

- Average pan-India prices rose 1% MoM (2% YoY) in May'21: South region and Maharashtra saw price hike of Rs5-10/bag MoM, while prices in North, Central and East regions saw marginal decline of Rs3-5/bag MoM. On a YoY basis, May'21 prices are likely up 2% YoY led by ~4% YoY increase in East and West regions, while rest of the regions are broadly flat YoY.

- Price hikes to mitigate the impact of cost escalations in fuel, diesel, slag etc. On a QoQ basis, Q1FY22E average pan-India prices till date are up by 6% QoQ led by 7- 10% QoQ rise seen in East, West and South regions and 3% QoQ hike seen in North and Central regions. With likely improvement in demand in Jun'21, dealers indicate the possibility of seasonal pre-monsoon price hike in Jun'21 in few regions. Over past one year, consensus FY22-23E earnings have been upgraded and the same may see further upgrades as volume / price improves with receding covid cases.

Source : Equity Bulls

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