Sector Update | 2 June 2020
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Volumes decline sharply, but margins remain strong
In this note, we assess the performance of the Indian cement sector in light of the Mar-20
results announced thus far. The four largest companies (UltraTech, Shree, ACC, and
Ambuja), as well as several mid-caps (Birla Corp, JK Lakshmi, Orient, etc.), which account
for ~60% of the total industry capacity, have reported their results. We highlight the
4QFY20 industry volumes declined 13% YoY, as expected, due to COVID-19 lockdown,
and 1QFY21 volumes are likely to decline ~40% YoY due to continued lockdown.
Realization improved 3% QoQ (5.5% YoY), driving an improvement in average EBITDA
per ton by 27% QoQ (31% YoY) to INR1,179/t. Total cost per ton also declined 3% QoQ
and 1% YoY) to INR3,673/t, led by lower power and fuel and freight cost.
For FY20, all large players reported decline in net working capital by three–eight days
of sales, whereas mid-sized players such as Birla Corp, JKLC, and Orient reported an
increase in net working capital.
Given the weak demand outlook, several companies (Shree, JK Lakshmi, ACC, and
Orient) have kept their expansion plans on hold, while several others (Ambuja,
UltraTech, and Birla Corp) have postponed the commissioning of ongoing expansions
by 3–12 months. We estimate nearly 15mtpa of planned capacities have been pushed
Aggregate volumes declined 13%
Aggregate volumes (mt)
Chg yoy %
Demand impacted by lockdown; expect ~40% YoY decline in 1QFY21
Refer to our earlier report
Industry volumes declined 13% YoY in 4QFY20, as expected, due to national
lockdown and plant shutdowns from March 24 to combat COVID-19.
We expect 1QFY21 volumes to decline ~40% YoY due to extended lockdown in
April and May. April volumes fell 86% YoY (as per core industry data released by
the Office of the Economic Advisor of India), but May has recovered strongly to
decline only 10-15% YoY as per our channel checks.
Most of the companies in the post-results conference calls reported utilization
has improved to 70–80% currently as demand is strong in the rural and semi-
urban areas with lower COVID-19 cases. Demand in urban areas however
remains weak due to higher COVID-19 cases as well as migrant laborers leaving
for their villages slowing down the pace of construction activity.
Average industry realization (based on companies that have reported) increased
5.5% YoY / 3% QoQ, led by major price hikes in the North (15% YoY) and Central
(8% YoY) regions. Prices rose 4–5% YoY in the West and East regions, and fell 2%
YoY in the South region.
As a result, companies with a higher exposure in North/Central (such as Shree,
Ambuja, and JK Lakshmi) witnessed a realization increase of 6–10% YoY. On the
other hand, companies with a higher exposure in South/East witnessed flat
realization (such as Orient and ACC) or lower realization (Sagar Cement) YoY.
According to our channel checks, cement prices have increased INR10–20/bag
YTDFY21 across regions, except South, where hikes are higher by INR40–
80/bag. These hikes are supported by supply constraints (in logistics and labor)
and a strong production discipline in a weak demand environment.
Realization improves on price hikes across regions (except South)
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com) +91 22 7199 2309
Basant Joshi - Research analyst
8 August 2016
Investors are advised to refer through important disclosures made at the last page of the
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