CEMENT Q4FY22 Result Preview

Equities | 5thApril 2022

Axis Securities Equity Research

HIGHER COSTS TO IMPACT MARGINS, DEMAND OUTLOOK POSITIVE

Cement Demand
After a subdued Q3FY22, cement demand witnessed an uptick in the month
of Jan’22. While demand in Feb’22 stood a little softer on account of the
election in key states of UP and Punjab, it recovered sharply in Mar’22,
particularly towards the second half of the month, supported by both trade
and non-trade segments. However, owing to a large base of the last year,
cement demand is expected to grow at the lower rate of 1% YoY in Q4FY22
on a YoY basis. Non-trade channel witnessed good demand as the central
government’s various projects in Infra and Housing segments continued at
a good pace, although it witnessed a little slowdown in Feb’22 due to
elections. Rural demand, which was the torchbearer last time, has yet not
recovered, keeping the overall cement demand rather muted. On a positive
note, urban and semi-urban demand picked up as the construction activity
gained pace in seasonally strong Q4. State governments projects are also
gaining pace gradually and the real estate demand is to remain strong during
the quarter.
With the onset of peak season and rising construction activities, we expect
cement demand to remain robust during Q1FY23 and would be driven by
pick up in the government projects in the Infrastructure and Housing
domains. We expect non-trade demand to improve further as the NHAI has
accelerated its road project awarding activities. We also expect rural
demand to pick up post good Rabi harvest season. Real estate demand is
showing good resilience and we expect real estate to be one of the key
demand drivers owing to an overall improvement in the real estate industry.
We remain constructive on the growth of the cement sector from the
medium to long term.
For companies under our coverage, we expect cement Volume/Revenue
growth of 1%/ 8% owing to better demand witnessed in the month of Mar’22
and better realization of QoQ and YoY. However, EBITDA/APAT is expected
to de-grow by 12%/26% YoY on account of higher operating costs. We
estimate overall cement industry demand to grow between 8-9% in FY23.
Rising input costs along with sustainable demand and pricing remain key
risks for the sector. Our preferred picks – in Large Cap: ACC and Dalmia
Bharat. In Mid Cap: JK cement, Small Cap: Orient cement and Star
cement.
Cement Pricing
Cement prices were higher during the quarter: The companies hiked prices
in Jan’22 from Rs 15-Rs 40/bag to combat rising input costs. Feb’22 witnessed
some rollback in prices which was again raised in Mar’22 by Rs 10-15/bag to
mitigate higher costs. Overall cement prices remained higher during the quarter.
On a sequential basis, we estimate realizations to be higher by 1-2% on the back
of higher prices. On a YoY basis, realizations are estimated to be higher by 5-6
%. The buoyancy in cement price is expected to reduce the burden of rising input
costs moving ahead.

Uttam Kumar Srimal |uttamkumar.srimal@axissecurities.in | Important disclosures can be found in the Disclosures Appendix
cement prices to trend higher in Q1FY23: We expect cement prices to trend
higher in Q1FY23 as overall construction activities are expected to remain robust
leading to higher cement demand. Under the present circumstances of the
recent rise in fuel and diesel prices, an increase in cement prices remains a top
priority for companies and to mitigate the current rising costs of fuel and diesel
prices, they need a hike of Rs 30-40 per bag. Historically, it has been seen that
the industry passes on the higher costs to consumers and we expect it to do the
same in Q1FY23, albeit in a calibrated manner. Moving forward, demand
sustainability and price increase remain key monitorables for the companies’
near-term operational performance. In light of robust demand backed by higher
government spending on Infrastructure as envisaged in Union Budget 2022-23,
affordable and rural housing projects, IHB demand, and renewed real estate
demand, the cement sector’s outlook remains positive.
TOP RESULT PICK
ACC, Dalmia Bharat, JK Cement, Orient Cement and Star Cement
Overall costs of cement production to rise sequentially: Higher input costs
remained the major concern for all cement companies throughout FY22 and will
remain so in FY23 unless fuel and diesel prices cool off meaningfully moving
ahead. Both imported coal and Petcoke prices are higher by 70% and 40% since
Jan’22 on account of the rising conflict between Russia and Ukraine. At present,
imported coal and pet coke prices are hovering around $250 and $200.
Furthermore, diesel prices are also trending higher post the completion of the
state election pushing the overall costs of cement production as fuel and diesel
form 40% of the overall costs. All this will lead to a sequential increase in the
overall costs of production of cement companies during the quarter and beyond.
Although crude prices have cooled off from recent highs, the situation still
remains dynamic and will remain so till the geopolitical crisis between Russia
and Ukraine subsides meaningfully.
EBITDA/tonne to contract by 14% YoY: Owing to higher operating costs, we
estimate the EBITDA/tonne of the companies under our coverage to contract by
14% at Rs 995/tonne from Rs 1,150/tonne last year. We see higher input costs
to impact companies’ operational performance in Q1/Q2FY23. From there on, it
should subside subject to cool off in commodity prices. We expect that better
cement demand, sustainable price increase, and costs optimization measures
undertaken by companies will help them reduce their prevailing costs pressure.
.
Important disclosures can be found in the Disclosures Appendix
Quarterly Preview– Q4FY22
Cement
Year-end March
Q4FY22 Q3FY22 QoQ(%) Q4FY21 YoY(%) Result expectations
(Rs Cr)
Dalmia Bharat
Volumes 6.61 5.70 16% 6.42 3%  Volume to grow on YoY owing to new capacity ramp up.

Revenues 3485 2731 28% 3281 6%  Consol revenue to grow owing to higher volume & better realization YoY.

Gross Profit 1380 1028 34% 1,480 -7%
 Gross margins to be lower YoY owing to elevated cost.
Gross margin (%) 39.6% 37.6% 200bps 45.1% (550bps)

EBITDA 644 409 57% 776 -17%
 Ebitda margin to decline on YoY as cost escalates.
EBITDA Margins (%) 18.5% 15.0% (bps) 23.7% (bps)  PAT to decline YoY owing to elevated cost.
PAT 250 95 163% 628 -60%  EPS to be in line with PAT
EPS (Rs) 13.39 5.09 163% 33.7 -60%  EBITDA/tonne to be lower YoY owing to higher cost.
EBITDA/Tonne 973 718 36% 1209 -19%  Realization to be higher YoY and QoQ basis

Realization/tonne 5270 4791 10% 5111 3%  Cost/Tonne to be higher as cost escalates.

Cost/Tonne 4297 4074 5% 3902 10%

J K Cements
 Volume to remain flattish owing to higher base last year.
Volume (mntpa) 4.00 3.44 16% 4.01 0%
 Consol revenue to grow YoY owing to higher realization.
Revenues 2385 2030 17% 2,134 12%

Gross Profit 991 866 14% 973 2%
 Gross margins to be lower YoY owing to elevated cost.
Gross margin (%) 41.5% 42.6% (110bps) 45.6% (410bps) 
EBITDA 440 366 20% 444 -1%  Ebitda margin to decline on YoY as cost escalates.
EBITDA margin (%) 18.4% 18.0% 40bps 20.8% (240bps)  PAT to decline YoY owing to elevated cost.

PAT 212 143 49% 216 -2%  EPS to be in line with PAT
 EBITDA/tonne to be lower on YoY owing to higher cost.
EPS (Rs) 27.3 18.2 50% 27.8 -2%
 Realization to be higher YoY and QoQ basis.
EBITDA/Tonne 1,101 1,064 3% 1,109 -1%
 Cost/Tonne to be higher as cost escalates.
Realization/tonne 5,969 5,910 1% 5,327 12%
Cost/Tonne 4,868 4,846 0.5% 4,218 15%

This reflects the views of the Axis Securities Limited 3

Cement (Cont’d)
Year-end March
Q4FY22 Q3FY22 QoQ(%) Q4FY21 YoY(%) Result expectations
(Rs Cr)
JK Lakshmi Cement
 Volume to de-grow on YoY basis owing to higher base last year.
Volumes 2.85 2.46 16% 2.90 -2%
 Revenue to be higher owing to higher realization YoY.
Revenues 1409 1193 18% 1,322 7%

Gross Profit 442 381 16% 505 -12%
 Gross margins to be impacted on YoY due to higher input cost.
Gross margin (%) 31.4% 31.9% (50bps) 38.2% (680bps)

EBITDA 194 146 32% 268 -28%
 Ebitda margin to contract on YoY basis owing to higher cost .
EBITDA Margins (%) 13.8% 12.3% 150bps 20.3% (650bps)
 PAT to be lower on YoY basis owing to elevated cost.
PAT 92 59 55% 137 -33%
 EPS to be in line with PAT
EPS (Rs) 7.8 5.0 55% 11.6 -33%

EBITDA/Tonne 682 595 14% 922 -26%  EBITDA/tonne to be lower on YoY owing to higher cost.

Realization/tonne 4,950 4,853 2% 4,552 9%  Realization to be higher YoY and QoQ

Cost/Tonne  Cost/Tonne to be higher as cost escalates.

Birla Corporation
 Volume to de-grow on YoY basis owing to higher base last year.
Volumes 4.02 3.35 20% 4.17 -4%
 Revenue to be higher owing to better realization.
Revenues 2165 1750 24% 2,133 2%

Gross Profit 777 701 11% 879 -12%
 Gross margins to be impacted on YoY due to higher input cost.
Gross margin (%) 35.9% 40.1% (420bps) 41.2% (530bps)

EBITDA 283 222 27% 392 -28%
 Ebitda margin to be lower on YoY basis as cost escalates.
EBITDA Margins (%) 13.1% 12.7% 40bps 18.4% (530bps)
 PAT to be lower on YoY basis due to higher cost.
PAT 108 60 78% 249 -57%
 EPS to be in line with PAT
EPS (Rs) 14.0 7.9 78% 32.4 -57%

EBITDA/Tonne 702 664 6% 940 -25%  EBITDA/tonne to be lower on YoY basis owing to higher cost.

Realization/tonne 5,381 5,224 3% 5,114 5%  Realization to be higher YoY and QoQ

Cost/Tonne 4,679 4,560 3% 4,174 12%  Cost/Tonne to be higher as cost escalates.

This reflects the views of the Axis Securities Limited 4

Cement (Cont…)
Year-end March
Q4FY22 Q3FY22 QoQ(%) Q4FY21 YoY(%) Result expectations
(Rs Cr)
Heidelberg Cement India Ltd  Volume to remain flattish owing to higher base last year.

Volumes 1.22 1.23 -1% 1.27 -4%  Revenue togrow owing to higher realization YoY.

Revenues 594 576 3% 595 0% 

Gross Profit 236 245 -4% 258 -9%  Gross margins to be impacted on YoY due to higher input cost.
Gross margin (%) 39.7% 42.5% (280bps) 43.4% (380bps) 
EBITDA 112 116 -4% 120 -7%  Ebitda margin to be lower on YoY basis as cost escalates.
EBITDA Margins (%) 18.9% 20.2% (130bps) 20.2% (130bps)
 PAT to be lower on YoY basis due to higher cost.
PAT 57 60 -4% 64 -10%
 EPS to be in line with PAT
EPS (Rs) 2.5 2.6 -4% 2.8 -10%
 EBITDA/tonne to be lower on YoY basis owing to higher cost.
EBITDA/Tonne 920 946 -3% 947 -3%
 Realization to be higher YoY and QoQ
Realization/tonne 4,870 4,683 4% 4,687 4%
 Cost/Tonne to be higher as cost escalates.
Cost/Tonne

Star Cement Ltd

Volumes 0.73 0.62 18% 0.66 10%

 Volume to grow on YoY owing to new capacity ramp up.
Revenues 470 407 16% 423 11%
 Revenue to grow on YoY basis due to higher volume..
Gross Profit 176 173 2% 166 6%

Gross margin (%) 37.4% 42.4% (500bps) 39.2% (180bps)  Gross margin to be impacted as cost escalates.
EBITDA 74 72 4% 84 -11% 
EBITDA Margins (%) 15.8% 17.6% (10bps) 19.8% (160bps)  Ebitda margin to be lower on YoY basis owing to higher operating cost

PAT 45.7 46.5 -2% -1.7 2714%  PAT to be marginally higher YoY .

EPS (Rs) 1.1 1.13 -2% 0.0 2714%  EPS to be in line with PAT.

EBITDA/Tonne 1021 1162 -12% 1268 -19%  EBITDA/tonne to be lower on YoY basis owing to higher cost.

Realization/tonne 6,450 6,589 -2% 6,396 1%  Realization to be higher QoQ and lower YoY

Cost/Tonne

This reflects the views of the Axis Securities Limited 5

Cement (Cont’d)
Year-end March
Q4FY22 Q3FY22 QoQ(%) Q4FY21 YoY(%) Result expectations
(Rs Cr)
ACC Limited

Volumes 8.05 7.49 7% 7.97 1%

 Volume to grow slightly YoY owing to new capacity ramp up.
Revenues 4663 4226 10% 4292 9%
 Revenue to be higher owing to better realization.
Gross Profit 1755 1331 32% 1657 6% 
Gross margin (%) 37.6% 31.5% 610bps 38.6% (100bps)  Gross margin to contract YoY as cost escalates.

EBITDA 914 556 64% 860 6%
 Ebitda margin to be lower on YoY basis owing to higher operating cost
EBITDA Margins (%) 19.6% 13.2% 640bps 20.0% (40bps)
 PAT to be higher YoY due to higher sales and better realization..
PAT 589 281 110% 563 5%  EPS to be in line with PAT
EPS (Rs) 31.3 14.9 110% 29.9 5%  EBITDA/tonne to be higher on YoY basis.

EBITDA/Tonne 1135 743 53% 1079 5%  Realization to be higher YoY and QoQ
 Cost/Tonne to be higher as cost escalates.
Realization/tonne 5,792 5,642 3% 5,385 8%

Cost/Tonne 4,657 4,899 -5% 4,306 8%

Shree Cement Limited

 Volume to de- grow on YoY basis owing higher base last year.
Volumes 8.17 6.55 25% 8.21 -1%
 Revenues to be higher due to highe realization on YoY basis.
Revenues 4385 3552 23% 3931 12%

Gross Profit 2020 1597 27% 2031 -1%
 Gross margin to be impacted owing to higher operating cost YoY.
Gross margin (%) 46.1% 45.0% 110bps 51.7% (560bps)

EBITDA 1123 826 36% 1177 -5%
 Ebitda margin to contract on YoY owing to high operating cost.
EBITDA Margins (%) 25.6% 23.3% 230bps 29.9% (430bps)  PAT to be lower due to higher cost YoY.
PAT 721 492 ` 767 -6%  EPS to be in line with PAT
EPS (Rs) 200 137 46% 213 -6%  EBITDA/tonne to be lower on YoY owing to higher cost.
EBITDA/Tonne 1375 1261 9% 1434 -4%  Realization to be higher YoY.

Realization/tonne 5,368 5,423 -1% 4,788 12%  Cost/Tonne to be higher as cost escalates.

Cost/Tonne 3,993 4,162 -4% 3,354 19%

This reflects the views of the Axis Securities Limited 6

Cement (Cont’d)
Year-end March
Q4FY22 Q3FY22 QoQ(%) Q4FY21 YoY(%) Result expectations
(Rs Cr)
Ambuja Cement Limited

Volumes 7.38 7.16 3% 7.24 2%  Volume to grow on YoY basis owing to new capacity ramp up.

Revenues 3929 3735 5% 3621 9%  Revenues to be higher due to higher volume & realization on YoY basis.

Gross Profit 1478 1394 6% 1662 -11% 

 Gross margin to be impacted owing to higher operating cost YoY.

Gross margin (%) 37.6% 37.3% 30bps 45.9% (830bps)

EBITDA 703 568 24% 977 -28%
 Ebitda margin to contract YoY owing to higher cost.
EBITDA Margins (%) 17.9% 15.2% 270bps 27.0% (910bps)
 PAT to be lower due to higher cost YoY.
PAT 429 252 70% 665 -35%
 EPS to be in line with PAT
EPS (Rs) 2.16 1.27 70% 3.35 -35%
 EBITDA/tonne to be lower on YoY owing to higher cost.
EBITDA/Tonne 952 793 20% 1349 -29%
 Realization to be higher YoY and QoQ
Realization/tonne 5,321 5,217 2% 5,002 6%
 Cost/Tonne to be higher as cost escalates.
Cost/Tonne 4,369 4,424 -1% 3,653 20%

Orient Cement Limited

Volumes 1.76 1.22 44% 1.85 -5%  Volume to de-grow on YoY owing to higher base last year.

Revenues 864 618 40% 832 4%  Revenue to be higher YoY due to better realization.

Gross Profit 301 234 29% 321 -6% 

 Gross margin to be lower on YoY due to higher operating cost
Gross margin (%) 34.8% 37.9% (310bps) 38.6% (380bps)

EBITDA 175 118 49% 203 -14%
 Ebitda margin to be lower on YoY basis owing to elevated cost.
EBITDA Margins (%) 20.3% 19.0% 130bps 24.4% (410bps)
 PAT to be lower due higher cost and lower volume YoY.
PAT 82 44 87% 100 -18%
 EPS to be in line with PAT
EPS (Rs) 3.99 2.13 87% 4.88 -18%
 EBITDA/tonne to be lower YoY basis on the back higher cost.
EBITDA/Tonne 996 965 3% 1095 -9%
 Realization to be higher YoY.
Realization/tonne 4,918 5,070 -3% 4,495 9%
 Cost/Tonne to be higher as cost escalates.
Cost/Tonne 3922 4105 -4% 3400 15%

This reflects the views of the Axis Securities Limited 7

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