India - Cement Dealer price checks

– December 2021
06 January 2022

Demand improves MoM, but price corrects Figure 1: Cement price summary DD MMM YYYY
 All-India average cement price is down by 5.4% MoM in Dec-21. The Average price per 50-kg bag (Rs) South East North West Central All-India
price decline seen across regions results from: 1) weaker than 3QFY21 339 274 323 317 303 311
expected recovery in volumes post Diwali holidays; and 2) 2QFY22 355 291 328 346 304 325
aggressive pricing by MNC players (following calendar year ending) 3QFY22 363 274 340 357 315 330
to push higher volumes. With the latest price cuts, the price hikes QoQ change (%) 2.2 -5.9 3.4 3.3 3.5 1.5
taken in October are completely reversed and all-India average YoY change (%) 7.2 -0.3 5.2 12.8 3.9 6.0
prices are back to end-Sep levels. More importantly, prices in Source: Industry, IIFL Research
3QFY22 are up only 1.5% QoQ – this might not suffice for offsetting
cost pressures, thus leading to further margin pressure. Based on
Figure 2: All-India average cement price was down 5.4% MoM in Dec 2021
dealer interactions, players are indicating a hike of Rs10 per 50-kg
bag or ~3% in Jan, although this has not yet been implemented.
All India: +3.4% YoY, -5.4% MoM
 Within regions, the highest decline in Dec was seen in the South
(-8.8% MoM), followed by the East (-5.3% MoM), North (-5.2%),
West (-4.6%) and central region (-2.5%). On a quarterly basis, all
regions have seen price hikes ranging over 2-4% QoQ, except the +4.2% YoY, -5.2% MoM
East, where prices are down 6% QoQ. Much weaker volumes vs rest
+4.5% YoY, -2.5% MoM
of India due to local factors led to increasing competitive intensity
driving down prices. A dealer in the West Bengal market shared that
prices in the State are at a record low, resulting in higher offtake
from dealers in December (hearsay suggests 30-50% MoM growth).
 As per dealer commentary, volumes have improved on MoM basis
after witnessing a sharp fall in Nov-21 (down ~21% MoM, as per
core industry data). However, given the high base of last year, Dec-
21 volumes are likely to be flattish YoY. Notably, rail freight data of -1.3% YoY, -5.3% MoM
cement & clinker loading in Dec-21 is down ~4% YoY whereas up
~24% MoM. As such, the 3Q rail freight data suggests a ~3% QoQ +10.0% YoY, -4.6% MoM
North
increase in volumes, albeit a 3.5% YoY decline. Although dealers are West
hopeful of pick-up in demand from mid-Jan, given the onset of peak Central
construction period, restrictions (if any) amid rising Covid cases can East
defer the recovery in demand. South

 We expect some earnings-cut for FY22, given weaker than expected -0.7% YoY, -8.8% MoM
volumes and higher than expected price decline in 3Q; however, we
believe volumes would recover, driven by higher infrastructure
spending and housing consumption. We maintain BUY on ACC, Source: Industry, IIFL Research
Ambuja Cements, Dalmia Bharat, JK Lakshmi and UltraTech Cement.

Devesh Agarwal | devesh.agarwal@iiflcap.com Mudit Agarwal | mudit.agarwal@iiflcap.com |

91 22 4646 4647 91 22 4646 4653
 India - Cement

North – Price dropped, demand subdued except Punjab: The West – Price down MoM but up sharply on YoY basis: The average
average Dec-2021 cement price is down by 5.2% MoM in the region. cement price is down by 4.6% MoM in Dec-21; but is sharply higher on
Cement price fell by Rs20 per 50-Kg bag MoM in Delhi-NCR and YoY basis– up 10%. In Gujarat, trade prices are holding-up however
Rajasthan; while it dropped by Rs13 per 50-Kg bag in Punjab. Demand non-trade prices have dropped by Rs10 per 50-kg bag. While in
was subdued across key markets except Punjab, where dealer Maharashtra, trade prices are down by Rs15-30 per 50-kg bag and non-
suggested healthy volume offtake during the month as well as for the trade prices are down by Rs20-25 per 50-kg bag. In Gujarat volumes
quarter (3QFY22). The construction ban in Delhi-NCR was lifted on 20th have improved MoM however these are significantly lower on YoY basis.
Dec-21, however demand recovery was slow. Further, rising Covid In Pune, demand was healthy driven by large housing projects, while in
cases is a concern over demand recovery in peak construction period. Mumbai primary factor driving demand is infra projects as housing
As such no price hike has been announced in the region. demand has seen some slowdown. As per dealers demand is expected
to pick-up from mid-Jan provided no stringent lockdown restrictions are
End-December price per 50-kg bag range was Rs290-375 in New Delhi, imposed due to rising Covid cases.
Rs255-335 in Jaipur, and Rs325-370 in Ludhiana.
End-December price per 50-kg bag range was Rs333-375 in Mumbai,
Rs305-330 in Pune, and Rs340-380 in Ahmedabad.
Figure 3: North − Price summary
Average price per 50-kg bag (Rs) Delhi Ludhiana Jaipur North Figure 5: West − Price summary
3QFY21 332 331 306 323 Average price per 50-kg bag (Rs) Ahmedabad Mumbai Pune West
2QFY22 334 348 303 328 3QFY21 316 336 298 317
3QFY22 348 357 314 340 2QFY22 351 360 328 346
QoQ change (%) 4.0 2.4 3.9 3.4 3QFY22 363 371 338 357
YoY change (%) 4.9 7.8 2.7 5.2 QoQ change (%) 3.6 3.2 2.9 3.3
Source: Industry, IIFL Research YoY change (%) 14.9 10.4 13.4 12.8
Source: Industry, IIFL Research
Figure 4: North India – Long-term cement price trends
Figure 6: West India – Long-term cement price trends
2017 2018 2019 2020 2021
2017 2018 2019 2020 2021
400 North India average cement price per bag (Rs) 400 West India average cement price per bag (Rs)
380
380
360
360
340 340
320 320
300 300
280 280
260 260
240 240
220 220
200 200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Industry, IIFL Research Source: Industry, IIFL Research

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 India - Cement

Central – Price decline lowest amongst regions: The average East – December prices are lowest in last 5 years: The average
cement price declined by 2.5% MoM in Dec-21 – the region registered cement price is down 5.3% MoM in Dec-21. The prices across states in
lowest fall across the country. The non-trade price (per 50-kg bag) has the region are lower by Rs20-30 per 50-kg bag from its peak seen in
declined in the 2nd half of the month by Rs20-25 in Indore and by Rs5 in Oct-21. Sluggish demand due to regional factors such as sand
Bhopal and Lucknow; while the trade prices are largely flattish. As per shortages, cyclones, transporter strike, etc. weighed on demand and
dealers demand has seen some improvement MoM with the resultantly prices. As such, as per dealers, cement demand has
recommencement of projects; however pick-up in IHB demand is slow. improved in Dec-21 compared to Nov-21 and further improvement is
General expectation is of pick-up in demand from Jan onwards; but if likely with beginning of peak construction period. West Bengal dealer
restrictions due to rising Covid cases, it could impact demand. As such, indicated that given rock-bottom prices in trade segment (Rs250/bag)
no price hikes has been indicated by cement players. almost nearing to the non-trade prices – the offtake by dealers was very
strong in December leading to 30-50% MoM growth (albeit on low
End-December price per 50-kg bag range was Rs270-355 in Lucknow, base). Further, companies indicated price hike of Rs10-20 per 50-kg
Rs270-350 in Bhopal, and Rs260-340 in Indore. bag in trade segment, however these are yet not implemented.
End-December price per 50-kg bag range was Rs240-260 in Kolkata,
Figure 7: Central region – Price summary
Rs250-300 in Patna and Rs230-275 in Bhubaneswar.
Average price per 50-kg bag (Rs) Indore Bhopal Lucknow Central
3QFY21 297 302 310 303 Figure 9: East – Price summary
2QFY22 294 302 316 304 Average price per 50-kg bag (Rs) Patna Bhubaneswar Kolkata East
3QFY22 311 315 318 315 3QFY21 294 260 269 274
QoQ change (%) 5.8 4.3 0.7 3.5 2QFY22 302 280 290 291
YoY change (%) 4.7 4.3 2.8 3.9 3QFY22 287 266 268 274
Source: Industry, IIFL Research QoQ change (%) -5.1 -5.1 -7.5 -5.9
YoY change (%) -2.5 2.4 -0.3 -0.3
Figure 8: Central India – Long-term cement price trends Source: Industry, IIFL Research
2017 2018 2019 2020 2021 Figure 10: East India – Long-term cement price trends
400 Central India average cement price per bag (Rs) 2017 2018 2019 2020 2021
380 400 East India average cement price per bag (Rs)
360 380
340 360
320 340
300 320
300
280
280
260 260
240 240
220 220
200 200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Source: Industry, IIFL Research Source: Industry, IIFL Research

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 India - Cement

South – sharp prices correction, back to Sept levels: The average All India – Price corrects across regions as demand recovery
cement price is down 8.8% MoM in Dec-21. Price in the region has lower than expected: The all-India average cement price in Dec-21 is
corrected sharply due to weak demand scenario. Average cement price down 5.4% MoM. Price drop is highest in South (-8.8% MoM) followed
in the region across states is down by Rs20-30 per 50-Kg bag except by East (-5.3% MoM), North (-5.2%), West (-4.6%) and Central (-
Kerala, where it was down by Rs45 per 50-kg bag on MoM basis. 2.5%). The price correction was due to slow pace of demand recovery
Cement demand in the region was weak due to i) liquidity issues with and volume push by MNC players at the year-end. Although, all-India
state government resulting in slowdown in government projects average cement price is up 3.4% YoY primarily reflecting cost inflation.
including affordable housing, ii) lack of new project launches especially
As shared by dealers, cement demand has improved sequentially in
in the Bangalore market, iii) excess rainfall in TN and iv) higher building
Dec-21 after witnessing steep volume decline in Nov-21 supported by
material prices. Dealers believe demand on the outskirts is better than
pick up in infrastructure projects (road, expressways, metro, and
urban centres. As per dealers material improvement in demand is likely
airports) and rural markets. Demand is expected to improve further
from mid-Jan post the Sankranti and Pongal festivals. Companies are
from mid-Jan’22 with the start of favourable construction period.
likely to increase price in coming days.
However, rising Covid cases could defer full demand recovery.
End-December price per 50-kg bag range was Rs260-340 in Hyderabad, Companies have indicated a 3% hike from January onwards but
Rs290-395 in Bengaluru, Rs300-350 in Kochi, and Rs330-380 in sustainably of this would depend upon demand recovery.
Chennai.
Figure 13: All India – Cement price summary
Figure 11: South – Price summary Average price per 50-kg bag (Rs) South East North West Central All-India
Average price per 50-kg bag (Rs) Hyderabad Bangalore Kochi Chennai South 3QFY21 339 274 323 317 303 311
3QFY21 309 334 358 354 339 2QFY22 355 291 328 346 304 325
2QFY22 320 357 376 369 355 3QFY22 363 274 340 357 315 330
3QFY22 328 375 371 378 363 QoQ change (%) 2.2 -5.9 3.4 3.3 3.5 1.5
QoQ change (%) 2.6 5.1 -1.3 2.6 2.2 YoY change (%) 7.2 -0.3 5.2 12.8 3.9 6.0
YoY change (%) 6.1 12.2 3.7 6.9 7.2 Source: Industry, IIFL Research
Source: Industry, IIFL Research Figure 14: All-India – Average price trend
Figure 12: South India – Long-term cement price trends 2017 2018 2019 2020 2021
2017 2018 2019 2020 2021 400 All India average cement price per bag (Rs)
420 South India average cement price per bag (Rs) 380
400 360
380 340
360 320
340 300
320
280
300
260
280
260 240
240 220
220 200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Industry, IIFL Research Source: Industry, IIFL Research

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 India - Cement

Figure 15: Valuation matrix

Companies CMP Market cap Reco TP EV/Ebitda (x) Capacity CAGR (%) Capacity (mtpa) EV (US$/MT) Capacity utilisation (%)
(Rs) (US$ m) Rs FY22ii FY23ii FY24ii FY21-24ii FY22ii FY22ii FY23ii FY24ii FY22ii FY23ii FY24ii
UltraTech Cement 7,655 29,667 BUY 8,150 16.9 15.2 13.1 5.3 120 252 216 207 80.4 77.0 84.4
Shree Cement 27,212 13,181 REDUCE 28,200 20.5 18.2 16.1 4.1 50 239 235 217 63.5 70.5 73.5
Ambuja Cement 394 10,500 BUY 440 13.7 12.0 10.5 3.6 31 189 180 160 85.2 90.6 91.5
ACC 2,241 5,656 BUY 2,600 11.3 10.3 8.7 3.8 35 138 134 117 78.3 84.2 84.2
Dalmia Bharat 1,911 4,802 BUY 2,350 12.9 11.8 10.6 16.3 36 137 125 106 64.0 63.6 58.6
JK Cement 3,464 3,593 ADD 3,550 16.7 15.7 13.7 7.8 16 243 250 194 86.5 93.2 81.5
The Ramco Cements 1,029 3,259 REDUCE 960 16.1 15.0 13.4 1.7 20 193 179 173 57.3 59.9 65.9
JK Lakshmi Cement 615 971 BUY 760 8.0 7.5 7.0 1.5 14 76 76 75 79.7 83.9 86.8
India Cements 207 860 SELL 160 11.9 10.5 9.1 - 16 79 76 72 64.2 68.7 73.5
Heidelberg Cement 228 694 ADD 280 9.1 7.8 7.2 - 6 102 98 93 80.8 86.4 90.7
Source: Company, IIFL Research

Companies Ebitda CAGR (%) Ebitda (Rs/MT) Realisation (Rs/MT) EPS CAGR (%) PER (x) ROE (%) P/BV (x) Net D/E (x) Net Debt / Ebitda (x) Exposure
FY21-24ii FY22ii FY22ii FY21-24ii FY22ii FY23ii FY24ii FY22ii FY22ii FY22ii FY22ii
UltraTech Cement 11.2 1,361 5,651 18.0 33 28 24 14.4 4.4 0.1 0.2 Pan India
Shree Cement 9.5 1,471 5,358 14.7 37 32 29 16.0 5.5 (0.5) (2.1) North & East
Ambuja Cement 14.4 1,262 5,181 15.0 23 22 20 13.9 3.0 (0.5) (3.8) Pan India
ACC 14.5 1,079 5,607 19.7 21 19 17 15.0 2.9 (0.5) (2.1) Pan India
Dalmia Bharat 8.8 1,224 5,119 12.0 32 28 25 8.5 2.6 0.1 0.2 East & South
JK Cement 9.7 1,250 5,782 10.7 31 29 26 21.4 6.1 0.3 1.1 North & South
The Ramco Cements 7.0 1,507 5,585 10.9 27 25 22 14.6 3.7 0.4 1.7 South
JK Lakshmi Cement 5.7 892 4,853 8.1 15 14 13 20.6 2.9 0.1 0.3 North & East
India Cements 5.0 760 5,207 23.7 24 20 16 7.5 1.8 0.7 3.5 South
Heidelberg Cement 6.3 1,036 4,768 6.5 18 15 14 18.6 3.2 (0.2) (0.6) Central
Source: Company, IIFL Research

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 India - Cement

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 India - Cement

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Name, Qualification and Certification of Research Analyst: Devesh Agarwal(PGDBM), Mudit Agarwal(Chartered Accountant)

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Key to our recommendation structure

BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.

SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.

Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.

Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

Distribution of Ratings: Out of 248 stocks rated in the IIFL coverage universe, 126 have BUY ratings, 11 have SELL ratings, 83 have ADD ratings and 26 have REDUCE ratings

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such
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conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

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