Strong volumes seen leading Q3 revenues for domestic cement players

Weak pricing, higher cost of production to hurt EBITDA/tonne of large players

The domestic cement sector is expected to witness volume-led revenue growth in the quarter ended December with strong demand from semi-urban and rural regions, mainly for housing, likely to lend firm support.

During Q3FY21, the demand for cement registered a 6-7 per cent year-on-year growth compared to the 5 per cent year-on-year growth seen in the preceding quarter, Antique Stock Broking said in its report.

The recovery been driven by the rural segment, followed by a pickup in tier-2 cities and infra segment along with a mild recovery in the urban segment, said the report.

While the demand was good in the northern, central and eastern regions, it declined in southern and western regions. Key demand drivers for north, central and eastern regions were infrastructure spending (largely government led) and rural housing, stated a Nirmal Bang report.

Increased welfare spending and better crop production led to an increase in demand for cement, they said.

Meanwhile, a soft pricing scenario in the period under review, coupled with a higher cost of production, is expected to hurt the sector’s EBITDA/tonne, said brokerages.

All-India prices for cement declined in the December quarter by 2-3 per cent sequentially, primarily due to a decline in prices in the eastern and southern parts of the country. This was partially offset by a flattish trend witnessed in the north, west and central regions.

“Overall, we expect a 5.9 per cent year-on-year increase in volume on an aggregate basis, a 1.9 per cent quarter-on-quarter decline in realisation and a 12.7 per cent quarter-on-quarter decline in EBITDA/tonne,” said Nirmal Bang.

On the cost front, prices of crude, diesel and imported coke have increased by 21 per cent, 4.4 per cent and 49 per cent, respectively, on quarter-on-quarter basis, which will lead to higher freight costs and power and fuel costs.

“Companies gave price discounts till December in order to meet their volume targets, and aggressive pricing by select players in order to garner higher market share led to the price decline,” said IIFL Securities.

Though the EBITDA/tonne is expected to decline sequentially in the December quarter, on a year-on-year basis, it is expected to remain up.

“In Q3FY21, we expect EBITDA/tonne (average) for the industry to contract by Rs 150 per tonne on a quarter-on-quarter basis, which is still higher by Rs 240-260 a tonne on year-on-year basis,” said the Antique Stock report.

Large-cap cement companies are expected to see a decline in EBITDA/tonne in the range of Rs 90-140 per tonne, while mid and small caps EBITDA/tonne is expected to decline in the range of Rs 60-300 per tonne. The sharpest decline would be for companies with exposure to south and east, said the report.

Among the top players, ACC is expected to report a 23.5 per cent quarter-on-quarter growth in volumes for the December quarter led by a pick-up in the northrn and eastrn regions. Realisations, however, would fall 2.4 per cent sequentially, said ICICI Direct in its report.

Cost of production per tonne may go up due to a rise in petcoke prices and this would lead to a sequential decline in EBITDA/tonne. On an absolute basis, EBITDA and PAT would grow by 4.2 per cent and 12.9 per cent sequentially, respectively, due to improved sales volumes, it said.

"For Ambuja Cement, we expect volumes growth of 20.5 per cent sequentially QoQ while realisations are expected to drop by 2.3 per cent in the period under review after strong up move in Q2. EBITDA/tonne is expected to decline 16.3 per cent sequentially to 1,004 per tonne whereas on YoY basis, it is likely to improve by 20 per cent due to cost rationalisation," said ICICI Direct.

The EBITDA/tonne of Ultra Tech Cement, the Aditya Birla Group company, is seen declining 13 per cent sequentially in the December quarter mainly on account of lower cement prices.

Among smaller players, Shree Cement is expected to have increased EBITDA at Rs 955 crore, up 12.5 per cent year-on-year. Ramco Cement too, is expected to see an improvement in its EBITDA/tonne sharply by 113.6 per cent to Rs 1,537 per tonne, said ICICI Direct report.