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ICICI Securities Report
Demand in pre-election year FY24 has started on a strong note. Volume for our coverage universe is estimated to grow more than 15% YoY (in sync with industry). Yet, coverage Ebitda is expected to stay flat YoY owing to –
muted cement prices (down 4-5% YoY, flattish QoQ) and
marginal QoQ drop in fuel cost due to inventory-lag impact (major benefits expected in Q2/Q3 FY24E).
Robust demand trend may drive volume assumptions higher and fuel cost too is set to ease further (at least until Q3 FY24E, based on current spot fuel rates).
However, it is too early to project earnings upgrade given the expected weak cement price season of Q2/Q3 FY24. Historically, both robust demand as well as plunging fuel cost have triggered competitive intensity.
Given the display of weak pricing power since past couple of quarters and heightened underlying competitive intensity (ever since Adani Cement’s foray with aggressive expansion plans), we see no reason for a different outcome this time as well.
We see limited risk to our Ebitda estimates (~7% below consensus) and stay cautious on cement sector.
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