Several cement companies like ACC and Ultratech posted their earnings for the quarter ended September 30 this week. While there were multiple target price upgrades on ACC, HDFC Securities has a ‘buy’ rating on the stock.
HDFC Securities’ Rajesh Ravi, who covers the cement sector, talked about the industry trend and stocks' performance in an interview with CNBC-TV18.
He said that the ACC’s numbers in the Q3CY21 result were decent. He also appreciated the company’s various cost reduction metrics that it is working on and said that is reflected in the third quarter’s performance.
According to Ravi, Ultratech is among the very well placed due to its strong purchasing power despite the impact of soaring fuel prices on the whole industry at present. He said that the overall costs past through capabilities will not be a challenge. The whole industry is looking forward to increasing prices and this has already started to play out in October, he said.
On margin outlook, he said given that the coal price increase in October has been phenomenal, it makes it difficult to forecast beyond Q3 on the costing front. However, in the third quarter, the companies are guiding around a Rs 200 jump in their input costs on a sequential basis.
The Rs 200 cost increase would not be as much of a challenge because companies already hiked Rs 10 to 15 at the beginning of October and now with Dussehra over, companies are trying another price hike for the second half of this month. So, another Rs 10 to 15 hike this month and another one post-Diwali can happen, he said.
Therefore, on a very pessimistic basis, Q2 numbers should not be breached in terms of margins. But on a base case basis, there is a good chance that another Rs 50 to 80 margin recovery should happen on a Q-o-Q basis if the industry is able to deliver on the pricing hikes, Ravi explained.
“While it seems easy because demand trajectory is relatively better off this time, Rs 100 improvements sequentially can be a base case and for the fourth quarter again, it all depends upon where the cost lands,” he said.
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