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Q2 FY24E has always been an operationally muted quarter for the cement industry, where prices often get moderated which drags the margin. However, the demand remained resilient aided by the infra and real estate segment, as a result we believe the industry to see a double-digit volume growth in Q2 FY24E.
During July-September 2023, cement prices moderated QoQ due to seasonal weakness coupled with higher dispatches to sustain sequential volume growth.
Consequently, we believe industry’s net sales realisation to moderate by 2-3% on both YoY and QoQ. However, revenue is expected to grow by 12% YoY, primarily driven by strong volume growth in Q2 FY24E.
Given the steady correction in energy cost, the three-month trailing blended fuel cost corrected to Rs 1.5 per kilo calorie/kg vis-a-vis ~Rs 2.16 per kcal/kg in Q1 FY24. Hence, we believe this cost moderation savings will start reflecting from Q3 FY24 onwards.
While the industry power and fuel cost can see another correction of Rs 100-150/tonne in Q2 FY24E versus Q1 FY24, translating the industry Ebitda to flat/marginal decline sequentially to +Rs 850/tonne.
We are cautiously positive taking the cognisance of rising fuel cost, which we believe can be mitigated through a healthy pricing environment in subsequent quarters.
Our top picks
UltraTech Cement Ltd., Dalmia Bharat Ltd., Sagar Cements Ltd., and Orient Cement Ltd.
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