Cement Sector Q3 Earnings Preview - Weak Demand Hits Cost Pass-Through: HDFC Securities
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HDFC Securities Report
Subdued rural demand and labour shortage led to cement demand contraction in November and early December 2021. Thus, we estimate our coverage universe (15 companies) to deliver 4% YoY volume decline in Q3 FY22 (two-year compound annual growth rate up 3%).
On a QoQ basis, volume is expected to rise a modest 6% (as against usual trend of ~ 15% rebound post monsoon). Thus, average utilisation remained subdued at 75% versus 81/71% YoY/QoQ.
We expect the average net sales realisation of our coverage universe to rebound 3/9% QoQ/YoY. While cement prices had increased sharply in Oct, weak demand in Nov/Dec led to prices rolling back.
Pet coke prices have surged another ~35% QoQ. Imported thermal coal prices cooled off mid-quarter onwards, leading to ~15-20% QoQ rise. Diesel prices remained flat QoQ. Thus, we have built in energy cost inflation of ~Rs 190/metric tonne QoQ for our coverage universe.
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