Seasonal Price Hikes to Trigger Cement Sector Outperformance
The average pan-India prices corrected 3-4% m-o-m (still up 5% y-o-y) owing to volume push (by calendar year-end companies) and fight for higher market share. Volumes and prices both are likely to be up 5-6% y-o-y during Q3FY21e, which would drive >25% y-o-y Ebitda growth. Key trigger to watch out for would be seasonal price hikes which usually start from mid-Jan’21 as peak construction period sets in and also necessitated this time by cost escalations. Overall, North, Central and East are likely to see >10% y-o-y growth during Q3FY21 while we expect South to post 7-8% y-o-y decline and West to be broadly flat y-o-y. Low base of Mar’20 would result in strong mid-teens y-o-y growth during Q4FY21e. Average pan-India prices up 5% y-o-y in Dec’20 led by 18% y-o-y rise in South and 3-5% y-o-y increase in West, North and Central regions. Prices corrected sharply in East by Rs 15-30/bag m-o-m and are down 7% y-o-y to almost 3-year lows. On a m-o-m basis, prices corrected by 3-4% across most other regions. Average pan-India prices up 6% y-o-y during Q3FY21 led by 18% y-o-y rise in South and 4-6% y-o-y increase in West, North and Central regions while prices in East are down 4% y-o-y. On a q-o-q basis, average pan-India prices are likely down ~3% q-o-q led by 5% q-o-q correction in South, West and East, while prices in North and Central regions are almost flat q-o-q. Companies may report strong 25-30% y-o-y Ebitda growth in H2FY21E led by 11%/5% y-o-y volume/realisation growth. Overall costs/te would turn almost flat y-o-y in H2FY21e owing to various input cost escalations compared to 4-5% y-o-y decline reported in H1FY21. Key trigger to watch out for would be seasonal price hikes which usually start from mid-Jan’21 as peak construction period sets in and also necessitated this time by cost escalations. We remain optimistic about these hikes.