Cement Sector Check - Fuel Cost Raising Its Head: ICICI Securities
Sector concerns appear sticky.
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ICICI Securities Report
Even as cement prices stand weak (since Q2 FY23 till date), the street found solace in the plunging global fuel costs, hoping it will stay low and drive-up Ebitda margins.
However, the recent rebound in global fuel rates (petcoke up 23% and thermal coal up 16% from the bottom of mid-July-23) could challenge the hypothesis (our savings expectations have been reduced from Rs 350/tonne to Rs 270/tonne).
Add to it the Q1 FY24 disappointment – of ~0.5-4% QoQ realisation drop and sequential rise in freight cost/tonne (reported by several cement companies) – and the saving expectations get further dimmed.
With the following concerns appearing sticky –
continued weak pricing power, and
uncertainty owing to huge capacity build-up by Adani Cement.
We stay cautious on the cement sector.
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