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Cement - Q2FY22 Earnings Preview - RESILIENT PERFORMANCE DESPITE COST HEADWINDS

(Rs/bag) fell by Rs15/Rs12/Rs10/Rs5 MoM due to aggressive volume push and seasonal factors. We see limited increase in...

Our interaction with cement dealers across India suggests that average cement price at an all India level has been flat MoM in Aug-21. Cement price has remained steady versus our expectation of weakness led by the monsoon. Recall in Q1FY22...

Our interaction with cement dealers across India suggests that after a strong price increase of 6% QoQ in Q1FY22, average cement price was flat MoM in July-21. We understand this is primarily due to pick up in the monsoon season. Cost continues to move northward with imported coal up 7% MoM in July-21 and this is after increase of 14% QoQ in Q1FY22. Freight cost index is up 1% MoM in June-21 and average of the index is up 4% QoQ. On demand front, in May-21 production is up 8% YoY and numbers are better than estimate. Further the demand momentum has picked up in June-21 and we have revised our volume estimate to -20% QoQ...

EBITDA/t to broadly stay flat QoQ despite high cost pressure Average diesel prices are up ~28% YoY, 6% QoQ leading to rise in average freight costs per tonne by ~| 50-52/t QoQ. Also, petcoke, coal prices inched up further by 12%, 19%, respectively, QoQ. With freight & power comprising over 50% of cost, we expect total production cost to increase by | 110/t QoQ to | 3946/t (up 2.7% YoY, 2.8% QoQ). However, with improved prices and controlled overheads, we expect EBITDA/t to remain...

contraction in margins, we believe that sector will sustain margins at elevated levels in FY22 on back of price hikes. We continue to like Ambuja cement (ACEM), Dalmia Bharat (DALBHARA) and JK Lakshmi cement (JKLC) on back of attractive valuations and strong earnings growth. Price hikes in Q1 offsets higher costs: Cement prices increased by Rs22/bag...

TOP RESULT PICK: Dalmia Bharat, JK Lakshmi,ACC and JK Cement

contraction in margins, we believe that sector will sustain margins at elevated levels in FY22 on back of price hikes. We continue to like Ambuja cement (ACEM), Dalmia Bharat (DALBHARA) and JK Lakshmi cement (JKLC) on back of attractive valuations and strong earnings growth. Price hikes in Q1 offsets higher costs: Cement prices increased by Rs22/bag...

Central unchanged except w estern UP w here (Rs/bag) prices increased by Rs3-7/bag. Prices in MP also w ere unchanged MoM. In line w ith North, prices are expected to...

Our interaction with cement dealers across India suggest that an average cement price has increased by 1% MoM in June-21 and thus Q1FY22 average cement price is up 6% QoQ. Cost has moved up too with imported coal is up 14% QoQ and freight index is up 4% QoQ in Q1FY22. On demand front, we are modeling in cement demand in Q1FY22 to be lower by 25% versus Q4FY21. But despite lower volume, EBITDA/t is expected to improve on QoQ in Q1FY22 (exhibit 12). This will be driven by higher realization. Historically realization has been strong until monsoon and then it starts receding. We are expecting softness in realization going...