Cement Makers Report Mixed Trend In Second Quarter
Here are the key performance parameters of pan-India cement producers.
Volumes of cement makers with national presence fell in the quarter ended September on the back of sluggish demand led by an extended monsoon, fewer projects awarded by the National Highways Authority of India and floods in key states.
Lower costs were a differentiating factor for operational performance of ACC Ltd., Ambuja Cements Ltd. and UltraTech Cement Ltd., according to stock exchange filings of these companies.
While ACC’s operational performance beat analyst estimates, the other two companies failed to meet them in the second quarter. Numbers of Ultratech Cement, which merged Century Cement with itself in the quarter, was not comparable on a like-to-like basis. Higher-than-expected operating costs hurt Ambuja Cement.
Here are the key performance parameters of pan-India cement producers:
Volume Growth In line With Expectations
Volume growth of ACC and Ambuja Cement dropped over last year mainly due to subdued demand on the back of an extended monsoon, poor real estate demand and falling construction activity. Ramp-up of Binani Cement’s assets, however, aided Ultratech Cement which has presence in all geographies.
Realisation Meets Forecasts
Ultratech Cement’s realisation rose the most among peers over last year due to its resilient prices in north and west India, according to data compiled by BloombergQuint.
ACC’s higher exposure to north—accounting for 22 percent of its total business—aided realisation.
Realisation of Ambuja Cements grew 5 percent due to incremental sale of premium brands. This was despite its significant presence in south, which has seen maximum price cuts. The cement producer has a near-21 percent capacity in the region.
Mixed Operational Performance
Earnings before interest, taxes, depreciation, and amortisation performance surpassed analysts’ estimates for ACC, partially benefiting from lower petcoke prices. Ultratech Cement and Ambuja Cement are yet to fully realise the benefit of lower petcoke prices, the company’s commentaries and a note by Citi.
Domestic petcoke prices fell 27 percent year-on-year and 11 percent quarter-on-quarter in the July-September period.
HSBC had upgraded both ACC and Ambuja after their first-quarter performance on account of discounted valuations by the two companies. “Ambuja Cements’ unitary Ebitda of Rs 841 is lower than ACC. This pretty much snaps two quarter outperformance trend that Ambuja depicted over ACC over the last two quarters,” the brokerage said in its second-quarter review note on Ambuja Cements.
Although brokerages remain divided on how the second-quarter results panned out, they hoped prices and demand would recover for the sector after Diwali.
Most analysts have a ‘Buy’ rating for ACC and Ultratech Cement, suggesting a potential upside of more than 10 percent. Even as the consensus remains divided on Ambuja Cement, the potential upside is the highest among peers at 15 percent.
