After a sturdy recovery from COVID-19 second wave in Jun and Jul-21, cement demand was impacted by the monsoons in August. Our market checks indicate that cement demand declined ~5-10% y-o-y in Sep-21, due to back-ended monsoon and flooding in various states. Cement demand was also impacted by a larger base in East and Central India (a sharp recovery right after COVID-19 lockdowns in FY21), although the base was most likely favourable in West and South India.
After 3 successive quarters of double-digit y-y development, we anticipate cement demand for our massive-cap coverage universe to improve 4% y-o-y (2-3% q-o-q decline). We forecast 6-7% y-o-y development for UTCEM /ACEM, reduce 3% y-o-y for ACC, although we anticipate a 3% decline for SRCM due to its larger presence in the East.
Pan-India cement rates decline 2% q-o-q: Pan-India cement rates had been seasonally weaker, down 2% q-o-q on typical through Jul-Sep’21. Cement organizations across regions attempted to raise rates in Sep-21, but with extended monsoon impacting demand, value hikes had been rolled back. Cement value declines had been steeper at 5%/3% q-o-q in East and South India, partly due to rollback of the sharp value hikes taken in Jun-21, although rates had been more resilient in West, North, and Central India.
We anticipate a 1-2% q-o-q decline in blended realisations for our coverage universe. Furthermore, our market checks indicate that cement rates have seen sharp hikes in Oct-21 with the market searching to pass on the effect of the sharp improve in input fees. The sustainability of value hikes remains a essential monitorable.
Expect power and freight fees to inch up: Domestic pet-coke rates continued to rise and had been up a additional 22% q-o-q (+91% y-o-y), although international coal rates also rose sharply a additional 35% q-q (+1.5x y-o-y) and have improved additional to cross $200/t so far in Oct-21. Similarly, driven by larger Brent oil rates, diesel rates additional improved 7% q-o-q (+18-22% y-o-y). We anticipate increasing input fees to sharply improve power and freight fees more than the next couple of quarters.
Lower realisations, larger input fees to effect margins: With seasonally weaker realisations and a continued improve in input fees, we anticipate a 19-26% q-o-q decline in per unit Ebitda for our coverage universe. With marginally reduce 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 anticipate cement demand to choose up post the festive period (early Nov’21).
But, with input fees continuing their uptrend, cement value hikes and its sustainability stay the essential. We choose UTCEM (Buy) in the massive-cap cement space and have a Reduce rating on each SRCM and ACEM, mostly on their steep valuations.