Cement ƒ All India cement production growth to moderate during the quarterƒ :Q3FY15 Result Preview : ICICI Securities, report

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Cement
ƒ All India cement production growth to moderate during the quarter
After reporting strong volume growth in Q2FY15, we expect some
moderation in demand during the quarter. All-India cement production
has declined by 1% in Oct-14. However, it reported strong growth of
11.3% YoY in Nov-14. With the visible signs of off-late recovery, we
expect this quarter to end with a growth of 4.9% YoY to 64.7MT at pan
India level. In terms of pricing, our channel checks suggest some
pressure on pricing (expect South) due to moderation in demand. For
Q3FY15E, we expect companies under our coverage universe to
register volume growth of 5.9% YoY, 5.3% QoQ led by capacity
expansion and some marginal pick-up in demand.
ƒ …Cement prices decline across regions, prices remain stable in South
During Q3FY15, Northern, East and Western regions have witnessed
price correction in the range of |15-20/bag, followed by sharp rally in
the previous quarter while in South and Central, prices have remain
stable. Overall, the prices at pan India level have remained higher by
5.3% YoY at |313/bag due to strong rebound in demand. Considering
this, we expect companies under our coverage to report realisation
growth of 5.7% YoY (down 1.9% QoQ) to | 4558/tonne.
ƒ I-direct universe to report topline growth of ~12% YoY during Q3FY15E
Aggregate revenue of our cement coverage universe is expected to
grow 12.0% YoY where volume growth is expected at 5.9% YoY with
cement realisation growth of 5.7% YoY. Among our coverage universe,
we expect Shree cement, Mangalam, Heidelberg and JK Cement to
report healthy volume growth of over ~12% YoY led by capacity
expansions. The average EBITDA margin of our coverage is expected to
increase ~223 bps YoY (up ~70 bps QoQ) to 15.9% in Q3FY15E due to
higher realisation during the quarter and lower freight cost/tonne. The
bottomline of our universe is also expected to increase by over 29%
YoY to | 1424.3 crore.
ƒ EBITDA/tonne to improve led by higher realisations and moderation in
freight costs
We expect EBITDA/tonne of our coverage universe to increase by
23.4% YoY | 726/tonne. Costs like freight cost are expected to see
some moderation due to fall in diesel prices.

: Company specific view
Company Remarks
ACC Cement sales volumes are expected to increase 3.8% YoY to 6.1 MT in Q4CY14,
which is lower than the industry average due to the company's large exposure to
the southern region where demand growth was low. Net realisation may grow
4.2% YoY to | 4799/tonne. Higher realisation may lead to 10.5% growth in
EBITDA/tonne
Ambuja Cement Cement sales volume is expected at 5.6 MT (up 2.1% YoY) in Q4CY14. We expect
cement realisations to increase ~15.4% YoY (down ~3.0% QoQ) to | 4,574/tonne.
The EBITDA/tonne is expected to increase ~58% YoY to |834/tonne due to better
realisations and better operational efficiency
UltraTech
Cement
The blended sales volume is expected to increase 7.9% to 10.8 MT in Q3FY15 with
better demand in the northern and western regions and commissioning of new
capacity in Gujarat. Blended realisation is expected to decline 3.6% QoQ
|4,872/tonne. The blended EBITDA/tonne is expected at | 825/tonne (up 7.9% YoY,
6.0% QoQ)
Shree Cement We expect cement sales volumes to increase ~13.5% YoY to 3.9 MT supported by
increased capacity and better demand in the northern region. Cement realisations
are expected to increase ~8.8% YoY (flat QoQ) to | 3,736/tonne. We expect
merchant power sales volume of ~400 million units (flat YoY) at realisation of |
4.0/unit. Cement EBITDA is expected at | 892/tonne (up 24% YoY) due to better
operational efficiency and better realisations
India Cement We expect sales volume to decline 7.4% YoY to 2.1 MT in Q3FY15E due to lower
demand in the southern region, especially in Andhra Pradesh, during the quarter.
Cement realisations are expected to remain flat QoQ due to lower sales volumes.
As a result, the EBITDA/tonne is expected to improve by mere 0.4% QoQ (mainly
due to lower freight cost)
JK Cement Blended sales volume (grey & white) is expected at 1.7 MT in Q3FY15 (up 11.3%
YoY). The blended realisation is expected to increase 4.9% to | 4619/tonne.
Blended EBITDA/tonne is expected to increase ~10.7% YoY at | 528/tonne vs. |
478/tonne reported in the last quarter
JK Lakshmi
Cement
Cement sales volumes are expected to increase 5.3% YoY during the quarter to 1.5
MT. The realisation is expected to increase 9.3% YoY to | 3872/tonne vs. |
3544/tonne last year. The EBITDA/tonne is expected to increase 29.6% YoY to |
580/tonne led by higher realisations
Mangalam
Cement
Sales volume is expected to increase 12.5% YoY to 0.53 MT in Q3FY15 led by new
capacity addition and improved demand. We expect cement realisations to
increase 12.6% YoY (up 2.7% QoQ) to | 3816/tonne. The EBITDA/tonne is expected
at | 604/tonne vs. loss of | 146/tonne last year, due to better realisation
Heidelberg
Cement
We expect sales volumes to increase ~12.7% YoY (down 0.1% QoQ) to 1.01 MT in
Q4CY14 led by capacity expansion. We expect realisations to remain flat YoY at |
3790/tonne due to stable environment. The EBITDA/tonne is expected at |
355/tonne vs. | 204/tonne in Q4CY13 due to better operational efficiencies and
higher realisations
Source: Company, ICICIdirect.com Research




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