Cement Sector Q3 Results Preview - Easing Cost Pressures To Pave Way For Margin Expansion: ICICI Securities
Total cost/tonne may rise 9% YoY but dip 3% QoQ as key fuel prices have started softening but are still up 20-25% YoY.
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ICICI Securities Report
Cement companies under our coverage may see flat YoY Ebitda during Q3 FY23E, however, it could rise by 53% QoQ, led by marginal rise in realisation and easing of input cost (fuel) pressures.
Coverage companies’ unit Ebitda may continue to see weakness as it may fall ~10% YoY (to Rs 794) owing to ~9% YoY rise in total costs/tonne against ~6% rise in realisation. However, ~3% QoQ dip in unit total costs, coupled with ~1% QoQ rise in unit realisation, may result in unit Ebitda increasing by 41% QoQ.
Checks suggest demand momentum may have picked up from mid-Nov 2022 and is being continued in Jan 2023 as well. Average pan India cement prices are expected to rise 2% QoQ primarily driven by East (~6%) and South India (~2%). North and Central India were primarily flat QoQ with negative bias.
Further, there have been marginal price hikes (Rs 5/bag; in few regions) in Jan-23 with industry attempting another Rs 10-15/bag in coming weeks.
These hikes, coupled with a busy season (Q4) ahead, shall arrest the Ebitda fall and result in margin expansion Q4 FY23 onwards.
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