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Cement: Yet another robust quarter in offing

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Consensus earnings are yet again likely to be upgraded given better than expected volumes/prices.

After posting >40% y-o-y Ebitda growth in each of the past two quarters, cement companies in our coverage universe are likely to repeat the performance in Q4FY21 too. This would be led by 24% y-o-y volume growth with Ebitda/te rising 14% y-o-y (Rs 150/te) to Rs 1,218/te. We expect realisations to rise 0.6% q-o-q (`30/te) and 4% y-o-y (Rs 190/te). Similarly, total cost/te may remain broadly flat q-o-q, but up 1% y-o-y (Rs 40/te).

Key trigger to watch: seasonal price hikes in Apr’21 (already announced Rs 15/bag) given peak construction period and necessitated by cost escalations. Consensus earnings are yet again likely to be upgraded given better than expected volumes/prices. SRCM & UTCEM remain our top picks. We also like ACEM, JKCE and TRCL. Key risks: lower demand/prices, and any regulatory interventions.

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Industry volumes expected to grow 20% y-o-y/15% q-o-q during Q4FY21e to 105mnte aided by the low base of Mar’20, with pan-India utilisation at ~85%. Adjusted for the base, industry growth is expected at 6-7% y-o-y. JKCE is likely to lead with >40% y-o-y volume growth while UTCEM/DALBHARA/ACEM /JKLC may see 24-30% y-o-y growth. ACC /SRCM/HEIM may report volume growth of ~20% y-o-y and TRCL/ICEM may see high single-digit y-o-y growth.

Average pan-India prices up 6% y-o-y during Q4FY21 led by 15% y-o-y rise in South and 10% y-o-y increase in West. Prices in North and Central regions are up 2-3% y-o-y while those in East are broadly flat y-o-y. On a q-o-q basis, average pan-India prices are likely up ~1% q-o-q led by 4% q-o-q increase in East and 2% in West. Realisations increase q-o-q is likely to be greater given higher (~3% q-o-q) price increases in non-trade segment, part of non-trade volumes shifting to trade segment, and better market mix change.

Average Ebitda/te may rise 14% y-o-y (Rs 150/te) and 1% q-o-q to Rs 1,218/te for our coverage universe. Overall cost/te may remain broadly flat q-o-q (up 1% y-o-y) as sharp ~Rs 150/te q-o-q increase in variable costs is likely to be offset by better operating leverage, lower maintenance costs, and cost efficiencies. Ebitda growth may be strong at ~70% y-o-y for TRCL and DALBHARA, and 40-50% y-o-y for UTCEM, JKCE, PRSMJ, and ORCMNT. Ebitda growth for ACEM, ACC and JKLC may come in at ~30% y-o-y. SRCM and TRCL are likely to lead with Ebitda/te of >`1,500/te. With improving VSF prices, standalone Ebitda for Grasim may more than double y-o-y to `8 bn on a low base.

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