After a robust recovery from COVID-19 second wave in Jun and Jul-21, cement demand was impacted by the monsoons in August. Our trade checks point out that cement demand declined ~5-10% y-o-y in Sep-21, due to again-ended monsoon and flooding in a number of states. Cement demand was additionally impacted by a better base in East and Central India (a pointy recovery after COVID-19 lockdowns in FY21), whereas the bottom was likely beneficial in West and South India.
After three successive quarters of double-digit y-y progress, we count on cement demand for our massive-cap protection universe to enhance 4% y-o-y (2-3% q-o-q decline). We forecast 6-7% y-o-y progress for UTCEM /ACEM, decrease 3% y-o-y for ACC, whereas we count on a 3% decline for SRCM due to its greater presence within the East.
Pan-India cement costs decline 2% q-o-q: Pan-India cement costs had been seasonally weaker, down 2% q-o-q on common throughout Jul-Sep’21. Cement firms throughout areas tried to increase costs in Sep-21, however with prolonged monsoon impacting demand, worth hikes had been rolled again. Cement worth declines had been steeper at 5%/3% q-o-q in East and South India, partly due to rollback of the sharp worth hikes taken in Jun-21, whereas costs had been extra resilient in West, North, and Central India.
We count on a 1-2% q-o-q decline in blended realisations for our protection universe. Furthermore, our trade checks point out that cement costs have seen sharp hikes in Oct-21 with the trade trying to go on the impression of the sharp enhance in enter prices. The sustainability of worth hikes stays a key monitorable.
Expect vitality and freight prices to inch up: Domestic pet-coke costs continued to rise and had been up an extra 22% q-o-q (+91% y-o-y), whereas worldwide coal costs additionally rose sharply an extra 35% q-q (+1.5x y-o-y) and have elevated additional to cross $200/t thus far in Oct-21. Similarly, pushed by greater Brent oil costs, diesel costs additional elevated 7% q-o-q (+18-22% y-o-y). We count on rising enter prices to sharply enhance vitality and freight prices over the subsequent few quarters.
Lower realisations, greater enter prices to impression margins: With seasonally weaker realisations and a continued enhance in enter prices, we count on a 19-26% q-o-q decline in per unit Ebitda for our protection universe. With marginally decrease volumes q-o-q, we estimate a 21-27% q-o-q decline in Ebitda and 28-38% q-o-q decline in PAT. We count on cement demand to choose up put up the festive interval (early Nov’21).
But, with enter prices persevering with their uptrend, cement worth hikes and its sustainability stay the important thing. We want UTCEM (Buy) within the massive-cap cement house and have a Reduce score on each SRCM and ACEM, totally on their steep valuations.