Sector outlook and stock views: Cement demand continues to accelerate led by robust retail demand and rising non-trade sales. We continue to be bullish on regional pricing outlook for north and central regions owing to robust regional utilisation, high regional consolidation and low influx of new players. Hence we expect players in these regions be better placed to pass on the recent spike up in cost inflation. We have revised up earnings estimates for south based Dalmia, Deccan and Orient factoring in robust pricing currently. We have rolled forward valuations on Dec'22E (vs Sep'22E earlier). Post the recent surge in stock prices, we downgrade ACC to ADD (from BUY earlier) and Shree Cement to REDUCE (from ADD earlier). Our top picks are UltraTech, Birla Corp, JK Cement and Dalmia Bharat. Utilisation firms up to 80% in 3QFY21E: Cement demand continued to recover during 3QFY21, firming up utilisation to 80% vs 78% YoY. During the quarter, we estimate aggregate sales volumes for 13 cement companies under coverage to accelerate to 9% YoY, (fastest in the past two years). This is led by volume growth across all markets barring south. While retail sales continued to be buoyant, even non-trade sales have picked up, boosting growth.

Target total capacity of 160 MT by FY30E; to reach 131 MT by FY23E The aim of reaching 160 MT by FY30E from 111.4 MT indicates capacity CAGR of 3.7% in FY20-30E. The newly announced cement capacity expansion of 12.8 MT (9.1 MT clinker capacity) and ongoing capex of 6.7 MT would take total capacity to 130.9 MT by end of FY23E. Region wise, major capacities are being added in the eastern, central region (73% of 19.5 MT), which has lowest road, power density per capita representing higher growth potential while rural population share remains one of the highest, providing...

We maintain BUY with an unchanged TP of Rs 5,670/share (15x Sep'22E consolidated EBITDA). UltraTech (UTCEM) has charted out its expansion plans for the next three years, whereby it will increase its grey cement/ clinker capacity in India by 19.5/11.4mn MT respectively, entailing a total Capex of Rs 65.3bn. Post this, its cement capacity in India will increase to 130mn MT by end FY23E/early FY24E. These should support its volume growth visibility FY24E onwards. The Capex rate is low, owing to ~50% brownfield expansions and lower clinker expansion needs. Multiple split GUs and WHRS additions will also help control operating cost, supporting its strong margins. We continue to like UTCEM for its robust margin outlook and debt reduction.

Ultratech (UTCEM) approved new capacity expansion of 12.8mtpa. It would incur total capital outlay of Rs54.8bn with attractive capex cost of USD58/t, significantly below standard cost of USD75-80/t. This expansion is over and...

Ultratech Cement Ltd (UTCEM) has announced massive expansion plans to increase its capacity by 19.5mn mt by FY23. The long term stated goal of the company was to add 50mn mt capacity by 2030 and a large part of that plan is being front-loaded with this announcement. The recent recovery in demand in various regions, especially in East, Central and North India, coupled with capacity constraints in East during peak period has prompted the company to announce its highest ever capacity addition plan. The capacity expansion programme includes ongoing expansion of 6.7mn mt of cement capacity and new capex of 12.8mn mt of cement, accompanied by 11.4mn mt of clinker capacity and close to 57MW of waste heat recovery system (WHRS). Total capital outlay for this project...

UltraTech (UTCEM)'s announcement today of organic expansion of 19.5mtpa (19%) by FY23 is positive on multiple counts 1) it provides visibility on aboveindustry volumes at a 10% CAGR over FY2124E, 2) it is incrementally positive for ROCE as expansion is at a cost of only ~USD55/t, implying ROCE of ~14% (v/s 10% currently), and 3) it addresses capital allocation concerns as cash flows over the next two years are deployed in the core business. Despite the expansion, we estimate UTCEM to turn net cash by 1HFY23. Reiterate Buy and the top-pick status in the Cement sector. Announces pan-India expansion at 100b p.a. from FY22. Announced capex of INR25b in...

UltraTech's consolidated cement sales volume grew 18.7% YoY (+36.9% QoQ) to 20.1 MT due to strong demand from rural & semi urban regions. Volume growth was recorded in all the regions barring the West region. Trade sales share increased 3.0% YoY while Rural markets penetration increased by ~5% YoY. In Q2FY21, UltraTech's utilization was at 66%. Utilization...

We initiate coverage on two prominent names in these regions: Birla Corporation (BCORP, target price Rs 1,191) and Heidelberg Cement (HEIM, target price Rs 234) with BUY recommendations. Top picks- UltraTech and Ambuja (large caps), JK Cement and Birla Corp (mid-caps). We believe the north and central cement markets in India are in a sweet spot. Despite muted demand, cement prices in these regions have been buoyant, driven by troika of considerable regional consolidation, high clinker utilisation, and a limited influx of new entrants. Companies in these regions are also enjoying low input cost inflation (high PPC sales and higher usage of low cost WHRS power). We believe these benefits will continue to sweeten profitability, validating our preference for companies in these regions

Lower than expected volume decline; realizations improve QoQ: UltraTech's consolidated cement sales volume declined 31.6% YoY (-31.7% QoQ) to 14.7MT. Disruption in operations was on account of suspension of operations across the company's facilities from 23/03/2020, in the wake of the COVID-19 pandemic. Operations resumed in a phased manner from 20/04/2020 and capacity utilization during the quarter was in the range of 60-65%. Company is witnessing demand largely in the retail & rural market, resulting in retail mix reaching an...

The fall in realizations were mitigated by fall in expense per tonne: The company's realizations came down during the quarter, which was mitigated by significant fall in expenses for the company, e.g. raw materials...

Volumes to bottom out in FY21E; gain traction from FY22E FY21 is expected to be subdued for the cement industry due to a significant loss of business with Q1 being a strong quarter. On the one hand, rural and semi-urban demand has been supportive since lifting of the lockdown while, on the other, construction and infrastructure activities are expected to lose steam in coming quarters unless labour shortage and liquidity conditions improve. Rural demand in FY21E could be robust on the back of expectations of normal monsoon and pick-up in individual housing building...

Tight fisted cost control leads to outperformance NBIE Values your patronage- Vote for The Team in the Asia Money poll 2020. Click Here Ultratech Cement Ltd. (UTCEM) reported extremely good set of numbers for 1QFY21, driven by lower than expected operating cost and better pricing. Despite lower volume, due to the ongoing pandemic, Ultratech has managed to post quarterly EBITDA/mt of Rs1,416, which is the highest in over a decade. Volume declined by 32% YoY to 14.7mn mt due to lower operating days (68 days in this quarter) amid the ongoing covid-19 induced lockdown. Cement...