Having seen subdued sales volumes in 1HFY18, cement industry is expected to witness a healthy comeback in terms of sales volume growth in 3QFY18 mainly due to low base effect and benign construction environment. Further, favourable monsoon for two successive years is also expected to have aided rural demand. However, dismal realisations (-2% YoY and -3% QoQ at all-India average price) and higher fuel cost (owing to soaring petcoke prices in general and ban on petcoke usage in Rajasthan, UP and Haryana in particular) are likely to take a toll on the profitability of the cement companies. While we expect companies under our coverage universe to report a stellar average volume growth of ~16% YoY and ~9% QoQ, EBITDA and PAT are expected to register an average growth of ~15% YoY and ~8% YoY, respectively.
Companies having higher exposure to Western and Southern regions are expected to see a sharp drop in their profitability owing to steep price correction. We expect the large-cap cement companies to deliver 13-60% YoY growth in EBITDA with ACC likely to witness the highest growth of 60% YoY followed by Ambuja Cements (31% YoY). Further, India Cements, Sagar Cements and Ramco Cements are likely to report dismal operating performance led by sharp deterioration in Southern realisation. UltraTech Cement, Shree Cement and Ramco Cements are expected to lead the pack with higher EBITDA/tonne in the range of Rs 870-1,140. Notwithstanding the cost pressure in the quarter, we foresee 2HFY18 would prove to be strong for the cement companies mainly owing to: (a) low base of volume growth; (b) likely recovery in realisation; (c) continuous traction in infrastructure projects; and (d) potential of further pick-up in rural consumption led by favourable monsoon and improving rural economy.
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