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07 December, 2021 14:51 IST
IDBI Capital expects cement demand of 14% YoY in FY22
Source: IRIS | 15 Oct, 2021, 12.32AM
Rating: NAN / 5 stars.
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   Average cement price at an all India level is down 1.5% MoM in Oct-21, stated IDBI Capital Equity Research. "Price decrease is seen across all the regions. In base case scenario we are modeling cement price increase in 2H as costs have increased sharply."

"Cost continues to move up with imported coal price up 45% MoM in Oct-21," added the broking firm.

"Imported coal price is up 150% since March-21. Freight cost index is up 1% MoM in Sep-21 and its up 4% since March-21. Cement production in India for the month of Aug-21 has increased by 36.3% YoY at 28.5mt. Demand has been strong. In Q1FY22 industry EBITDA/t has increased QoQ led by ASP increase. But due to cost inflation and lower prices we expect cut of Rs 100-350 in EBITDA/t in Q2FY22E," it said.

"Due to delay in cement price hike, in the last 1 month, Large cap cement stocks are down 8% (versus Nifty 50 which is up 4%) and Mid and Small cap cement stocks are flat. Cement stocks have underperformed due to cost inflation and no commensurate price hike. Demand (Infra, Real estate, rural demand) has been strong in the industry and price hike is keenly watched to protect the margin. Large Cap cement stocks trades at 15x FY23E EV/EBITDA. At CMP, we have HOLD rating for ACC and UTCEM and SELL rating for ACEM and SRCM," the broking firm added.

Monthly key variables:

Cement prices: Average cement price at an all India level is down 1.5% MoM in Oct-2021. Price decline is seen across all regions with Central at -3% MoM and East/ West/ North/ South at -1% MoM. Due to price hike in Q1FY22, YTDFY22 average cement price is up 3% YoY at an All India level and for the period region wise East prices is up 6%, West is up 4%, North/South is up 3%, and Central is up 1% YoY.

Coal cost: In Oct-21, imported coal (adj. for currency) is up 48% MoM. Freight index is up 1% MoM in Sept-21. Input cost inflation has been steadily increasing in cement for fuel and logistics. YTDFY22 so far average coal prices have increased by 145% YoY and freight index is up 10% YoY in FY22 till date.

Cement demand: Cement production in India for the month of Aug-21 has increased by 36.3% YoY. YTDFY22 volume of industry is up by 38%. Cement demand has been strong and we expect cement demand of 14% YoY in FY22E.

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