ACC, Ambuja Cement, Ultratech Cement upgraded by 15-25 pct over period

ICICI Securities says demand and price of cement will improve further in Oct 2020. Channel checks suggest cement demand has further improved by 8-10% MoM in Oct 20 on the back of 20% MoM improvement seen during Sep 20. This would translate to mid teens YoY growth for Oct 20 on a low base (down 8% YoY during Oct 19) due to a shift of festive holidays to Nov 20 this year. Management as well as consensus commentaries on FY21E demand outlook are likely to turn incrementally positive. ICICI Securities continue to factor in low single digit decline in industry volumes for FY21E vs consensus view of at least low double digit decline. Average pan India prices rose by Rs 10 / bag MoM (up 5% YoY) in Oct 20 led by Rs 15 / bag MoM increase in North and West regions, mainly to mitigate recent cost increases. Consensus FY21E-FY22E EBITDA for ACC, Ambuja Cement, Ultratech Cement has been upgraded by 15-25% over the past four months.

ICICI Securities raised the target price on ACC to Rs 1830.

ICICI Securities raised the target price on Ultratech Cement to Rs 5725.

ICICI Securities raised the target price on Ambuja Cement to Rs 300.

Industry volumes expected to grow in mid teens YoY to 31mnte during Oct 20 with pan India utilisation at 80%. Some companies in its recent Q2 FY21 result call indicated that its utilisation rose to over 80% in Oct 20 vs 73-74% in Sep 20. This would imply 85-90% utilisation in North, Central and East regions with South and West operating at sub 70% in Oct 20. Given the shift of festive holidays to Nov 20 this year, combining Oct-Nov volumes together would be better for more meaningful comparison. While rural and semi urban housing demand continues to drive growth, pick up in government led infrastructure and non trade demand likely aided growth in Oct 20. Pent up urban demand and non trade demand, especially in the South and West, may improve going ahead with the gradual return of migrant workers.

Huge divergence in regional growth continues:

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North is likely to post strong more than 20% YoY growth (extended monsoon / construction ban in NCR impacted volumes last year) with Central and East regions likely to see 10-15% YoY growth. South and West regions are seeing MoM improvement (despite extended monsoon this year) and would broadly turn flat YoY (on 15% YoY decline last year).

Average pan India prices up 5% YoY during Oct 20 led by 13% YoY increase in South. Prices are up 5-6% YoY in North and West and almost flat YoY in East and Central regions during Oct 20. On a MoM basis, North and West regions saw Rs 15 / bag price increase while rest of the regions saw Rs 5-7/ bag MoM increase. Companies may partially switch to coal owing to sharp increase in pet coke prices, which may impact productivity in the interim leading to high rated capacity utilisation.