Over FY20-23e, industry is expected to add ~68mtpa grinding capacity and ~30mtpa clinker capacity.
The trend of divergence between grinding and clinker capacity utilisation will only broaden, as the industry plans to add ~68mtpa grinding capacity by FY23e but is backing it only with ~30mtpa new clinker capacity. While North has the best clinker to grinding capacity addition ratio, we believe it will at best slow (and not reverse) the increase in clinker utilisation there. Reaffirming our thesis of clinker shortage driving upcycle in North/Central regions.
16mtpa lower than required clinker capacity addition planned
Over FY20-23e, industry is expected to add ~68mtpa grinding capacity and ~30mtpa clinker capacity. While the upcoming grinding units need not be directly dependent on the planned clinker capacity, we believe that at an overall level, clinker capacity addition is 16mtpa lower than what is required to back the grinding pipeline fully. Even assuming highest possible blending in each of the regions, planned clinker capacity addition will fall short by 7mtpa. This, we believe, should further broaden the divergence in grinding and clinker utilisations.
Lowest clinker to grinding capacity addition ratio in East, highest in North
At all-India level, 0.4mtpa clinker capacity is planned to be added for every 1mtpa grinding capacity over FY20-23e. While East plans to add only 0.1mtpa clinker capacity per te grinding capacity, North will add more clinker capacity (13.2mtpa) than grinding capacity (6.1mtpa) — indicative of the industry’s acknowledgement/expectation of high clinker utilisation there.
Yet, clinker utilisation in North not expected to be impacted much
Expect clinker utilisations in North to steadily increase over FY20-23e as demand growth recovery FY21e onwards offsets the clinker capacity addition.
JK Cement’s grinding capacity additions backed by new clinker capacity
In our coverage, apart from Ambuja’s 1.8mtpa grinding/3.1mtpa clinker Marwar Mundwa integrated plant, only
JK Cement’s planned grinding capacity addition is backed by adequate clinker capacity increase. While Ultratech and Shree Cement have excess clinker capacity, their excess clinker position will deteriorate as they execute their capacity addition plans.
Prefer North and Central focused players
We reiterate BUY recommendation on JK Cement (PT of Rs 1,490; for its North focus, significant capacity addition pipeline and strong white cement/wall putty franchise), ACC (PT of Rs 1,771; adding more capacity over the next four years than it did in last eight years and trading at 1SD below its longterm average 1 year forward EV/Ebitda) and Heidelberg Cement (PT of Rs 240; highly concentrated Central play with 85% trade sales and competitive cost structure). Retain HOLD on Ultratech (PT of Rs 4,246) & Ambuja (PT of Rs 197) and UNPF on Shree Cement (Rs 16,893).