Cement Sector Check - Strong Volumes Improve Clinker Utilisation: Motilal Oswal

Motilal Oswal Report

After an initial hiccup in demand during early Q3 FY23; we believe cement demand recovered strongly over the quarter. We estimate 10% YoY volume growth in Q3 FY23 (three-year compound annual growth rate at 5.4%), aided by strong infrastructure and real estate demand as well as the low base effect of last year (sales volumes dipped 2.6% YoY in Q3 FY22).

We expect 12% YoY volume growth for our coverage universe in nine months FY23 and estimate 4% YoY volume growth in Q4, thus translating into a volume growth of 10% YoY for FY23.

We believe that clinker utilisation for our coverage companies has improved to 81% in Q3 FY23; up 4.5% YoY and 5.0% QoQ. Clinker utilisation in Q4 is estimated to be at 89.4%; largely in line with the utilisation trend of Q4 FY19 (90.7%) when the industry began to exhibit pricing power.

Demand trend in early-January 2023 has remained strong and hence, we do not see any major risks for our Q4 FY23 volume growth assumptions (Q4 historically is the best quarter for cement demand).

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