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MOSL: CEMENT-Demand subsides in North India; Prices getting rolled back

CEMENT: Demand subsides in North India; Prices getting rolled back

 

Our interactions with various market participants in North India reveals that 1QFY20 cement demand has been ~10% YoY lower and is expected to remain under pressure till monsoons end. 

• After peaking in Mar'19, cement demand has weakened due to labor shortage, which was impacted on account of the general elections. 1QFY20 cement demand has been ~10% YoY lower and is expected to remain under pressure till monsoons end. Further, sand mining issues are still prevalent in markets of North India.
• While the strong demand in March encouraged players in the northern regions to increase prices in April and May, the month of June saw prices getting rolled back due to the demand slowdown.
• The northern region is fairly consolidated with the top-5 players accounting for ~70% of the market share. No major capacity expansion is expected to come on stream for the next two years, barring Wonder Cement (adding 2.5mt by Jul'19) and JKCE (adding 2mt by Sep'19).
• We prefer JKCE as we believe the company should witness an improvement in profitability due to the commissioning of new capacities. We value the white cement segment at 10x June'21 EV/EBITDA and the grey cement segment at 8x June'21 EV/EBITDA to arrive at a target price of INR1,237/share for JKCE . Buy.