Cement Sector Q3 Results Preview - Margins Continue To Remain Under Pressure: Nirmal Bang

Nirmal Bang Report

Marginal improvement is estimated in earnings in Q3 FY23 for cement companies in our coverage universe. Demand figures are higher and overall growth is projected at ~8% YoY for Q3 FY23 in the backdrop of peripheral construction activities in individual house builders segment emanating from government spending on infrastructure.

But, overall cement prices across major consumption centres have not picked up as input cost increases have not been absorbed despite several attempts by companies.

Margin pressure continued due to the twin effects of higher operating costs (especially energy costs, which are expected to trend down to reasonable levels in Q4 FY23) and weak realisations.

We are building in ~8% YoY growth in demand for Q3 FY23. Prices have increased by Rs 7-12/bag in most parts of the country, except the East and North East, where the prices have increased by Rs 15-25/bag.

For Q3 FY23, we are building in 13.9% YoY revenue growth for the sector, driven by ~4.2% YoY growth in realisation whereas volume is expected to increase by 9.4% YoY. We are building in flat QoQ average realization/million tonne.

On the other hand, operating costs are likely to increase by 17.9% YoY, largely due to higher power and fuel costs. As a result, we expect the industry to report 5.8% YoY decline in Ebitda.

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