Cement industry earnings likely to be hit in Q1 FY21

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Updated: Jul 11, 2020 12:03 AM

Volumes are expected to fall 30% y-o-y in the quarter. Led by a lower fall in May at 12% y-o-y and a 1% y-o-y growth in June, cement companies were able to restrict the impact of the 80% fall in April to 30% for the quarter.

Based on data from the Department of Industrial Policy and Promotion, cement production slumped by 54% y-o-y in April-May 2020 on a base of +2.5% y-o-y growth. Based on data from the Department of Industrial Policy and Promotion, cement production slumped by 54% y-o-y in April-May 2020 on a base of +2.5% y-o-y growth. (Representative image)

The cement industry’s earnings in the first quarter of FY21 are expected to take a hit due to a steep fall in volumes and high margin base. Ebitda is expected to fall by 37% year-on-year, impacted by reduced operating leverage and the sharp fall in volumes due to the Covid lockdown.

Volumes are expected to fall 30% y-o-y in the quarter. Led by a lower fall in May at 12% y-o-y and a 1% y-o-y growth in June, cement companies were able to restrict the impact of the 80% fall in April to 30% for the quarter.

“We remain positive on the sector in the wake of improving demand outlook, sustainable price discipline and reasonable valuations. UltraTech Cement, Ambuja Cement and JK Lakshmi Cement remain our top picks,” market analyst Prabhudas Lilladher said in a note.

Based on data from the Department of Industrial Policy and Promotion, cement production slumped by 54% y-o-y in April-May 2020 on a base of +2.5% y-o-y growth. Production fell sharply 85% y-o-y in April due to the blanket lockdown except essential commodities. “We expect weakness in demand to reverse in H2FY21E on the back of improved availability of labour in tier-I cities, strong outlook in rural markets and improved liquidity,” the market analyst pointed out.

According to Prabhudas Lilladher, in light of weak volumes, the industry depicted strong maturity by maintaining tight price discipline across markets. The all-India average price increased 7.5% or Rs 24 per bag q-o-q, led by a steep rise in south, west and east regions. Prices in south/east/west/north/central region rose 18%/7%/6%/4%/4% (Rs 55/Rs 19/Rs 20/Rs 14/Rs 12), respectively in q-o-q. Prices dipped by Rs 9-10 per bag across regions in the last week of June except the central region due to a month-end push and normal moderation after a steep increase, it added.

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