The latest Motilal Oswal report projects a robust volume growth of approximately 10% year-on-year (YoY) for the cement sector’s coverage universe in the fourth quarter of FY24, surpassing the three-year compound annual growth rate (CAGR) of around 8%.
In the same period, the report indicates an average capacity utilization of about 93%, signaling an improvement compared to previous quarters.
Motilal Oswal remains inclined towards Ultratech Cement in the large-cap category, while expressing a preference for Dalmia Bharat Industries and JK Cement in the mid-cap segment, foreseeing a potential upside of 25%.
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Despite strong volume growth, the cement sector faced a setback due to a correction in cement prices across various regions. Notably, the all-India average cement price witnessed a decline of approximately 7% quarter-on-quarter (QoQ), impacting blended realization, which is estimated to decline by around 3% to 4% YoY/QoQ.
As a consequence of the significant price correction, the average Earnings Before Interest, Taxes, Depreciation, and Amortization per ton (EBITDA/t) is expected to decline by approximately 12% QoQ to Rs 990. This revision is expected to be partially offset by positive operating leverage and favorable fuel prices.
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Report also says despite the robust volume growth, the report estimates a decline of 3% YoY in revenue for Grasim Industries. However, adjusted Profit After Tax (PAT) is projected to witness an impressive growth of 80% YoY.
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Within Grasim, the Viscose Staple Fiber (VSF) segment is expected to experience a 5% YoY increase in volume, although realization is estimated to decline by 6% YoY. Meanwhile, the Chemical segment is anticipated to witness a 6% YoY volume growth, with realization potentially declining by 20% YoY.
Despite the strong volume growth, the report forecasts a reduction in earnings estimates due to the sharp price correction. Furthermore, factors such as upcoming general elections and capacity expansions by industry players pose risks to earnings estimates for FY25/FY26.
The report underscores the cement sector’s sensitivity to price hikes and potential risks such as sustained low demand environment till the first half of FY25 and fuel price increases.
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