ACC, Ambuja Outperform In March Quarter; Rising Costs A Worry For Cement Makers

Cost cuts and higher volumes helped pan-India cement makers overcome nearly flat realisations in the quarter ended March.

While Ambuja Cement Ltd. and ACC Ltd. outperformed on operational metrics in the quarter ended March, market leader UltraTech Cement Ltd. reported better volumes. That came as demand continued to recover in the January-March quarter. But a severe Covid-19 second wave now threatens to slow down that rebound in the three months ending June of FY22.

Cost pressure continues as well. UltraTech expects it to stabilise only by December.

Volumes Continued To Rebound

Cement demand continued to recover, led by an uptick in urban real estate and infrastructure activity. Pan-India cement makers saw their volumes grow in line with estimates in the quarter ended March.

While they reported double-digit growth, it came on a low base as the entire nation was in a complete lockdown a year earlier.

UltraTech’s sequential volume growth beat peers’. India largest cement maker attributed it to demand from the housing and infrastructure sectors. According to Morgan Stanley, it was the strongest sequential volume growth reported so far by any cement company that it covers.

Realisations: Not Much To Cheer About

Growth in realisations, or what cement makers earn on every tonne of the product, was flat both sequentially and not encouraging on an annual basis. According to a report by Motilal Oswal Financial Services Ltd., the pan-India average price fell sequentially by 1% in central and eastern regions, declined 2% in the south and remained flat in the north. It rose 2% in the west. Higher realisation from grey cement helped UltraTech put up a better show on an annual basis.

Deep Cost Cuts Aid Operating Efficiency

Ebitda per tonne rose the most sequentially for the Holcim Group companies. Higher petcoke and fuel prices for ACC and Ambuja Ltd. were partly offset by higher volumes, a better-than-expected decline in fixed costs (like maintenance, external labour, rentals, fees and wages); and rail freight discounts.

ACC beat estimates by 11%, while Ambuja and UltraTech’s operating efficiency was in line with estimates compiled by BloombergQuint.

But for UltraTech, energy costs rose which it expects to stabilise by the third quarter of the ongoing fiscal 2022.

Capacity Expansion Plans

UltraTech, India’s largest and the world’s third-largest cement maker outside China, plans to add 19.5 million tonnes a year capacity by FY23. That will take its total production capability to 136.3 MTPA.

While Ambuja delayed its expansion, it still expects to carry that out in the ongoing financial year 2022.

Ultratech Cement

The board earlier sanctioned a capacity expansion of 19.5 MTPA via a mix of brownfield and greenfield projects.
Additional capacity being created in east, central and north India.
Commercial production of expanded capacity is to go on stream in a phased manner in FY22 and FY23.

ACC

Commercial production at the 1.4 MT grinding capacity in Sindri, Jharkhand commenced in January 2021.
The greenfield 2.7 MTPA integrated project in Ametha, Madhya Pradesh (with associated grinding units) is expected to be commissioned by June 2022.

Ambuja Cement

Delays 1.7 MTPA greenfield Marwar–Mundwa plant in Rajasthan by a quarter. This is now expected to be commissioned by September 2021.

Outlook For June Quarter

UltraTech’s management was confident of a sharp demand recovery after the second wave of Covid-19, similar to what happened last year. But it said the situation in the near term was volatile. The industry, however, will continue to face cost pressures till the third quarter of fiscal 2022.

ACC and Ambuja maintained a cautious yet positive outlook for overall cement demand in the coming months. “Though the second wave of pandemic warrants caution, the increased vaccination drive combined with the various stimulus proposals provided in the Union Budget 2021 and accommodative monetary and fiscal policies are expected to support economic recovery in the medium term,” Ambuja said in a statement. Rural demand is likely to remain resilient on a good projection for the agriculture sector, it said.

Credit Suisse, in its latest result update for UltraTech, maintained caution on margins as it expects fuel and freight costs to rise more.

(Corrects an earlier version that misstated January-March was Q4 for ACC and Ambuja. They follow calendar year.)