Cement companies in the Centrum coverage universe reported an average EBITDA margin of 23.8% in Q3 FY21 versus 18.4% in Q3 FY20. Healthy realisation gains of 6% YoY attributed to weak base and pricing aberration in South India with better than expected cost control helped margins improvement. Logistic and energy costs inched up however continued decline in other expenses helped overall cost decline of 1% YoY. Pan-India cement companies like ACC and UltraTech Cement gained realisation by 4%-5% which helped with their southern presence.

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The average gain in volume was 8% helped by north based companies that added capacities in FY20/FY21 (partially offset by weak volume growth exhibited by south based companies). Effectively aggregate EBITDA gained strongly by 46% and EBITDA/tn for the coverage companies jumped 34% YoY as realisation gains propelled earnings. Volume gains were lower than expected in the Q3FY21 though the momentum is steadily picking up, effectively implying volume decline in FY21. JK Cement, Shree Cement and Ramco Cements displayed strong cost controls on the other hand cost inched up for Ultratech Cement while local issues disturbed cost structure for Star Cement.

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The medium-term sector headwinds related to softening prices on the back of higher volume growth pressure and cost inflation backed by reversal in energy and logistic cost will pose a challenge to maintain the elevated realisations and EBITDA/tonne for the cement companies. Factoring the strong performance in 9M FY21 we have revisited FY21 earnings estimates. The volume pick up (expect healthy recovery in FY22) will offset weak realisation while cost control measures (alternate energy and rationalisation of lead distance) will help the cement companies deliver earnings growth in FY22 leading to upward revision of earnings estimate.

Capacity expansion plans back on track:

UltraTech Cement has announced a 12.8 mtpa new capacity expansion in central and eastern region and ACC’s Central India expansion is likely to commission in CY22. Shree Cement’s grinding units in Cuttack and Pune will go on stream in Q4 FY21 and JK Cement has announced new capacity expansion in Central India (Panna, Madhya Pradesh). Companies with capacity expansion plans in advance are likely to see the commissioning according to the earlier plans.

Ramco Cement’s Jayantipuram clinker unit will be commissioned by first half of FY22 and the Kurnool clinker unit in FY22. Ambuja Cement will commission the Marwar-Mundwa expansion (Rajasthan) in mid-CY21. Star Cement’s Siliguri grinding unit was commissioned in January 2021. 

Centrum Broking have introduced FY23 earnings and rolled over their valuations accordingly to FY23 in Q3 FY21. Centrum Broking continues to assign ‘BUY’ rating to Ambuja Cement / Orient Cement / Star Cement / UltraTech Cement. Centrum Broking have assigned ADD rating to ACC / JK Cement / Ramco Cement. Centrum Broking have downgraded Heidelberg Cement to Reduce rating and upgraded Shree Cement and Ramco Cement to ADD rating.