Cement

Coronavirus curbs have impacted the cement supply chain – JK Cement

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,505 (+1.4%). Top gainers in NIFTY50 were M&M (+7.8%), Bajaj Finserv (+6.6%), and Tata Motors (+5.4%). The top losers were Dr Reddy (-3.9%), TCS (-3.9%), and Tech M (-3.3%). The top sectoral gainers were PSU BANKS (+4.5%), AUTO (+4.3%), and FIN SERVICES (+3.4%) while the sectoral losers were IT (-3.3%) and PHARMA (-1.2%).


Excerpts of an interview with Mr. Rajnish Kapur, COO, J.K.Cement (JKCEMENT) with CNBC -TV18 dated 12th April 2021

  • Currently. lockdowns have not impacted the production per se in any of their operations. What they are now witnessing is on the supply side, movement of the cement outside the plant has got affected. In some of the cities, there are partial lockdowns, some places it is night curfew, and in some cities in MP where the day movement is also not allowed. 
  • Raw material cost is a matter of concern. The pet coke price has risen ~110 per cent and today imported pet coke is costing about $ 126 per tonne. 
  • Similarly, coal prices have increased by 54 per cent so these two combined would have an impact of anything about Rs 250 per tonne on the cost of production.
  • They are actually looking at total power and fuel cost increase of somewhere in the region of Rs 250-275 in 1Q and 2QFY22. 
  • There doesn’t seem to be any indicators at this point in time that the cost is going to go down. There has been a marginal increase in the price of cement by ~Rs 5-10 in the markets where they operate.
  • At an industry level, they are not much concerned about demand at this point in time. They feel that the country has got enough to work upon. 
  • As an industry, they are looking at something between 10 and 12 per cent growth in FY22 which has just started.

Asset Multiplier comments:

  • Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and is expected to reach 379 MT by FY22. (https://www.ibef.org/industry/cement-india.aspx)
  • India has a high quantity and quality of limestone deposits (the raw material for cement) throughout the country. Hence, the cement industry has a huge potential for growth.
  • The Eastern states of India are likely to be the newer and untapped markets for cement companies. These could contribute to the cement companies’ bottom line in the future.

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of JKCEMENT was ₹ 2,852/- as of 13th April 2021.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 107/ 123 for FY22E/23E respectively.
  • The consensus price target is 2,574/- which trades at 21x the earnings estimate for FY23E of 123/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Expect double-digit volume growth in FY22E – BIRLACORPN

Update on the Indian Equity Market:

On Friday, Nifty closed 0.2% higher at 14,924. Within NIFTY50, SBIN (+11.3%), TATASTEEL (+4.9%), and DIVISLAB (+4.5%) were the top gainers, while AXISBANK (-3.1%), BHARTIARTL (-2.7%), and TATAMOTORS (-2.4%) were the top losing stocks. Among the sectoral indices, PSU BANK (+3.6%), PHARMA (+1.7%), and METAL (+1.0%) were the top gainers while MEDIA (-4.5%), AUTO (-1.3%), and IT (-0.9%) were the top losing sectors.

Expect double-digit volume growth in FY22E – BIRLACORPN

Excerpts of an interview with Mr. Aditya Saraogi, CFO, Birla Corporation, aired on CNBC-TV18 on 4th February 2021:

  • BIRLACORPN management expects volumes of 13 mn ton in FY21 as compared to 13.6 mn ton in FY20. Lower volumes in 1QFY21 due to the pandemic have impacted FY21 full year volumes to be marginally lower YoY.
  • In FY22, management expects demand for cement to be strong on back of Government’s focus on growth and investments. Management expects double digit volume growth for BIRLACORPN in FY22.
  • Growth in demand is primarily coming from rural and infrastructure segments. Tier 2 & 3 cities are also going well.
  • In 4QFY21, management expects double digit YoY growth in volumes. Realizations have come off a bit and there is increase in cost due to fuel price inflation. As a result, margins may be under pressure in 4QFY21E and EBITDA per ton may come down by ~Rs 100 or so.
  • Going ahead, given the robust demand environment, management expects no difficulty in passing on increased costs and expects to maintain EBITDA margins in coming quarters.
  • BIRLACORPN is in the process of adding 4 mn ton capacity by Sep-2021. They also have an ambitious target of achieving 25 mn ton capacity by FY25 from current capacity of 15 mn ton.
  • BIRLACORPN’s current net debt position is Rs 35 bn and peak net debt is expected to be below Rs 40 bn. Cost of capital for BIRLACORPN has come down by 150-170 bps.

Consensus Estimate (Source: market screener website)

  • The closing price of BIRLACORPN was ₹ 831 as of 05-February-2021. It traded at 12x/ 12x/ 10x the consensus EPS estimate of ₹ 67.0/69.3/84.2 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 973/- implies a PE multiple of 12x on FY23E EPS of ₹ 84.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Demand to bounce back as festive season approaches – Dalmia Bharat

Update on the Indian Equity market:
On Monday, Nifty50 ended marginally higher at 11,931 as the Finance Minister announced fiscal stimulus measures. Among the sectoral indices, IT (+1.7%), PHARMA (+0.9%), and FMCG (+0.3%) were the only gainers while MEDIA (-2.4%), PSU BANK (-1.7%) and REALTY (-1.1%) led the losers. Among the stocks, INFY (+2.9%), ITC (+2.7%), and UPL (+2.0) led the gainers while BHARTIARTL (-2.8%), JSWSTEEL (-2.7%), and GAIL (-2.6%) led the losers.

Excerpts of an interview with Mr. Mahendra Singhi, MD and CEO of Dalmia Bharat with CNBC TV-18 which aired on 12th October 2020:
• The cement sector is on the path of revival. September demand vs the previous months of July and August is much better.
• The rural areas are showing good progress due to better economy or better policies from the government. The demand is increasing on a month-on-month basis.
• Both the urban and rural areas have shown good demand in the month of September as labor issues are being sorted. Sufficient steps to ensure the safety of the people have been taken. Now, the fear is reducing and people are assuming this to the new normal and working.
• Festival season is around the corner and demand is expected to bounce back.
• There was a 10% decline YoY in the months of July and August. September was 3-5% lower than a year ago.
• The cement sector is a localized business. Demand has been good in certain regions such as the North and Eastern parts of India due to a higher percentage of rural markets in those areas. Part of Southern states are still facing challenges.
• He expects the month of October 20 to be better than October 19.
• The company has completed the acquisition of Murali Industries. The revival activities for Murali industries has started and is expected to take nine months as the company was closed for a long time.
• The acquisition of Murali Industries and capacity addition at two plants is expected to increase the total capacity to 33,000 mn tonne by March 21.

Consensus Estimate: (Source: market screener website)
• The closing price of Dalmia Bharat was ₹ 790/- as of 12-October-2020. It traded at 36x/ 25x/ 13x the consensus earnings estimate of ₹ 22/ 31.4/ 60.2 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 959 implies a PE multiple of 16x on FY23E EPS of ₹ 60.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”