Cement – Q1FY22 Preview: Resilient performance expected in quarter

While YoY as well as q-o-q comparison in Q1FY22e is not meaningful given the varying degree of lockdown/restrictions due to Covid, industry is expected to post ~45% y-o-y growth in volumes with almost stable Ebitda/te y-o-y on a reported basis. On a q-o-q basis, volumes are expected to be down ~20% q-o-q vs usual ~10% q-o-q decline, while average Ebitda/te may rise 8-9% q-o-q despite cost escalations. We expect average realisation to rise 5% q-o-q (Rs 230/te) and 2.6% y-o-y (Rs 130/te) and total cost/te to increase ~3% both q-o-q and y-o-y (Rs 120/te).

Consensus earnings are yet again likely to be upgraded given better-than-expected prices sustaining to date in seasonally weak monsoon necessitated by cost escalations. Our coverage universe FY22-23e Ebitda is 8-10% ahead of consensus. SRCM & UTCEM remain our top picks. We also like ACEM, JKCE and TRCL. Key risks: Lower demand/prices and any regulatory intervention.

Industry volumes expected to grow 45% y-o-y/decline 20% q-o-q during Q1FY22e to 85mnte with pan-India utilisation at ~70%. West and South regions are likely to lead volume growth on y-o-y basis on a low base. Similarly, non-trade demand is likely to be better on a y-o-y basis led by higher infrastructure demand. JKCE is likely to lead with ~70% y-o-y volume growth while UTCEM/ ACEM may see 50-55% y-o-y growth.

Average pan-India prices up 6% q-o-q during Q1FY22 led by 11% q-o-q rise in East and 6-7% q-o-q increase in South and West. Prices in North and Central regions are up 3-4% q-o-q. On a y-o-y basis, average pan-India prices are likely up ~2.5% y-o-y. Non-cement revenues including RMC, white cement/ putty, etc are likely to be down >30% q-o-q owing to Covid-induced restrictions.

Overall cost/te may increase ~3% both q-o-q and y-o-y as sharp increase in variable costs are likely to be partially offset by better cost efficiencies. Average domestic pet coke prices are up 11% q-o-q and 85% y-o-y, while imported coal prices are up 16% q-o-q and 60% y-o-y. Similarly, average diesel prices are up ~7% q-o-q and ~30% y-o-y.

Average Ebitda/te may rise 9% q-o-q (~Rs 100/te) and 2% y-o-y to Rs 1,353/te for our coverage universe. Ebitda growth is likely to be strong at 40-70% y-o-y for most companies under our coverage. TRCL is likely to lead with Ebitda/te of >Rs 1,600/te followed by SRCM and DALBHARA at ~Rs 1,500/te.