iifl-logo-icon 1
IIFL

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

  • Open Demat with exclusive Advice & Services
  • Get a dedicated Relationship Manager to help you grow your wealth
  • Exclusive advisory on 20+ trading & wealth-based investment options
  • One tap Investments, Automated trading & much more
  • Minimum 1 lakh margin required
sidebar image

Q3FY24 Review: Cement: Higher Ebitda/t drives Q3 profits; weak prices risk Q4 profitability

12 Feb 2024 , 12:19 PM

The Q3FY24 Ebitda for analysts of IIFL Securities universe was up 55% YoY and 30% QoQ to Rs81bn, 4% ahead of estimates, as better profitability offset subdued volumes. The volume growth during the quarter was subdued at 5-6% YoY and 2-3% QoQ given long festival holidays and elections in 5 States. However Ebitda/t saw sharp improvement – up 46% YoY and 26% QoQ to Rs1,190/t driven by both– better realisation and lower costs. Going ahead, management commentary suggests: 1) volumes to pick-up in Q4 however cautioned of some weakness due to impending elections, 2) prices to increase with improving demand, and 3) cost tailwinds to continue as benefits of lower fuel costs and favourable operating leverage to accrue. Analysts of IIFL Securities note, during Q3, 7 companies announced new capacities or shared plant wise details aggregating to 50m MT; with this total capacities likely to commission by FY27 is 130m MT – implying a growth of 8% Cagr. Although so far the demand and supply gap looks balanced but risk of supply glut is increasing. Currently the sector is trading at 17x 1yr-fwd EV/Ebitda - 20% premium to its long term average leaving little scope for re-rating; however pricing discipline due to consolidation could lead to earnings surprises. Analysts of IIFL Securities preferred picks in the sector are Ultratech, Dalmia Bharat and JK Lakshmi. 

Volume growth slowed down in Q3FY24: 

Industry volumes have slowed down in Q3FY24 due to slower than expected pick-up post festival holidays. Analysts of IIFL Securities note, industry volumes in Q3 grew by 5% YoY (2% QoQ) as against 14% YoY growth seen in H1FY24. Companies shared that long festival holidays and elections in 5 states impacted volumes in Q3. Regionally, volumes in the East region were weak as per mgmt. commentary. The two biggest pan India players (Ultratech and Ambuja), accounting for nearly 40% of India cement volumes, saw moderate volume growth of 2-5% YoY while other players saw better growth (ex Nuvoco, JK Lakshmi and Orient Cement). Within analysts of IIFL Securities covered universe, JK Cement reported higher volume growth of 13.5% YoY driven by ramp-up of volumes in Central India. The capacity addition continues to be strong – analysts of IIFL Securities note over the last 12 months – 32m MT capacity was added for their covered universe implying a 10% growth in capacities. Given the pick-up in capacity additions – the Q3 utilisation fell 200bps YoY to 75% but was up 100bps QoQ. 

But higher profitability drove Ebitda growth: 

The Q3FY24 Ebitda, for analysts of IIFL Securities coverage universe, was up 55% YoY and 30% QoQ to Rs81bn. The Ebitda per tonne was up 46% YoY and 26% QoQ to Rs1,190/t - better than estimates. They note higher realisations and falling fuel prices supported profitability in Q3FY24. Of the Rs250/t QoQ improvement – Rs150 is through higher realisation while the balance Rs100/t is owing to cost reduction. The blended realisation is up 2.5% QoQ - aided by price hikes implemented across regions during Sept-Oct’23. On cost front, softening energy prices and operational efficiencies continue to aid profitability. Analysts of IIFL Securities note that petcoke and international coal prices are down 25-30% and 60-65% YoY respectively in Q3FY24. 

50m MT new capacities announced in Q3FY24: 

7 companies (UTCEM, SRCM, ACEM, JKCE, JKLC, TRCL, and SGC) have either announced new capacities or shared plant wise details aggregating to 50m MT in Q3FY24. With this, analysts of IIFL Securities note, total capacities under construction is 130m MT that will be added through FY27 – at a CAGR of 8% over FY24-27. Given strong outlook on medium term demand, supported by healthy balance sheet (most companies are net-cash or near net-cash), is driving new capacities. As analysts of IIFL Securities believe demand is likely to grow at 7-8% pa over the next few years, the new supplies may be absorbed by incremental demand but risk of glut is increasing. 

Mixed outlook: 

Though cement prices are sharply down, now below Sept-exit prices; the industry profits would be driven by higher volumes sequential and lower costs (aided by operating leverage). Companies are optimistic about demand recovery in Q4 given peak construction period and subdued Q3, but cautioned about some impact of impending Union Election. As such, based on company guidance, volumes are likely to grow by 5-7% YoY and 16-18% QoQ in Q4FY24. On pricing, analysts of IIFL Securities channel checks suggest 4% QoQ decline – this would weigh on Q4 profitability. Some companies expect prices to increase with pick-up in volumes. On fuel side, expectations are flattish to marginal decline QoQ, but cost/t would decline given operating leverage benefits. Based on current trend, Ebitda/t is likely to see a decline QoQ; however pick-up in volumes coupled with price hikes could lead to flattish profitability QoQ. 

Stock performance to mirror earnings growth: 

Although analysts of IIFL Securities sector estimates (Ebitda) for FY24-26 is largely unchanged over the last 12 months, they note company estimates have undergone change ranging from -6% to 8% over the last 12 months (JK Cement and Shree Cement has seen an upgrade ranging 5-6%; while Ramco Cement has seen a downgrade). Currently, the sector trades at 16.7x 1YF EV/Ebitda- at 19% premium to its historical average. Analysts of IIFL Securities expect stocks to consolidate at current levels given falling prices and uncertainty around volumes. However continued infrastructure spend and strong housing demand should drive volume growth over medium term. Also the increasing consolidation in the sector is likely to bring in pricing discipline aiding improvement in profitability. As such, analysts of IIFL Securities expect sector’s Ebitda to grow by 19% Cagr over FY24-26. They preferred picks are Ultratech, Dalmia Bharat, and JK Lakshmi.

Related Tags

  • Cement
sidebar mobile

BLOGS AND PERSONAL FINANCE

Read More
Knowledge Centerplus
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Securities Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Knowledge Centerplus

Follow us on

facebooktwitterrssyoutubeinstagramlinkedin

2024, IIFL Securities Ltd. All Rights Reserved

ATTENTION INVESTORS
  • Prevent Unauthorized Transactions in your demat / trading account Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day." - Issued in the interest of investors.
  • KYC is one time exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary.
  • No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor's account."

www.indiainfoline.com is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy. On the site we feature industry and political leaders, entrepreneurs, and trend setters. The research, personal finance and market tutorial sections are widely followed by students, academia, corporates and investors among others.

RISK DISCLOSURE ON DERIVATIVES
  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to Rs. 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.
Copyright © IIFL Securities Ltd. All rights Reserved.

Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

plus
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.

closeIcon

Get better recommendations & make better investments

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp