How Cement Makers Fared In The Fourth Quarter
Operating income and volume growth of three of the five pan-India cement makers beat estimates in the quarter ended March.
Of the five largest cement makers in the country, UltraTech Cement Ltd., Orient Cement Ltd. and Dalmia Bharat Ltd. reported better-than-estimated numbers. Lack of presence in the southern market and rise in power and freight costs weighed on the earnings of LafargeHolcim group companies—Ambuja Cements Ltd. and ACC Ltd.
UltraTech Cement continued to outperform its peers after it clocked a 15 percent year-on-year volume growth. That compared with Ambuja Cement’s 2 percent and ACC’s 5 percent growth.
UltraTech’s sales volumes have been much stronger than the industry’s for at least five years, Nomura said. In the last two years, it was driven by the Aditya Birla Group-owned cement maker’s acquisition of Jaiprakash Associates’ cement assets in 2017-18.
While Orient Cement’s volumes reached an all-time high, Dalmia Bharat grew at a slower pace due to clinker-capacity constraints in the eastern region.
For ACC and Ambuja Cement, the biggest constraint was slow capacity expansion. ACC, in its annual report, acknowledged the risk of being left behind as rivals expand capacity.
Realisations Miss Estimates
All cement producers, except Orient Cement, missed the average of estimates compiled by BloombergQuint. That was largely because of a fall in prices in the north.
A sharp price hike in the high-yielding southern market aided the performance of Dalmia Bharat and Orient Cement.
Higher exposure to the eastern market weighed on the realisations of Ambuja Cement and ACC, according to Vivek Maheshwari, analyst at CLSA. Ambuja Cement’s realisations remained flat because of its absence in the southern region, where prices rose in the January-March period.
Ebitda Below Estimates
Operating income of both the LafargeHolcim group arms missed estimates. While ACC’s earnings before interest, tax, depreciation and amortisation rose, Ambuja Cement registered a decline in Ebitda.
Power and freight costs weighed on the operational performance of ACC and Ambuja Cement. UltraTech Cement managed to lower both the costs, while Orient Cement saved on power expenses.
Power costs were expected to fall as domestic pet coke prices declined 5 percent on a yearly basis and 13 percent sequentially during the quarter. But the savings of each company varied based on the inventory and the price at which it was purchased.
The industry was expecting a 3-5 percent decline in freight costs due to change in axle norms. But that didn’t reflect in the fourth-quarter financials of ACC, Ambuja and Orient Cement.