Workers unload sacks of cement. (Photographer: Kuni Takahashi/Bloomberg)

Why Ambuja Cements Lagged Peers Last Quarter

Ambuja Cements Ltd. posted the slowest volume growth compared to its peers for the three months ended December, dragged down by weak demand from the western region.

The Mumbai-based cement maker clocked 4.4 percent volume growth, its lowest since the first quarter of calendar year 2018. This was weaker than other pan-India cement producers—Ultratech Cement Ltd., ACC Ltd. and Dalmia Bharat—as well as regional players from south and north.

The average industry growth for the December-ended quarter, however, ranged between 8 and 10 percent.

Exposure To Western India

Ambuja Cements’ sizeable exposure to the western region—which has witnessed a slowdown in demand—is responsible for its lower volume growth, according to Sumangal Nevatia, lead analyst at Macquire.

As per empirical data, the demand usually tapers off post state elections, Ritesh Shah, analyst at Invesec, said.

The company’s lack of exposure in the fastest-growing southern market also added to its woes during the quarter, according to Citi Analyst Raashi Chopra. Volume growth trends were strong for south-based players like The Ramco Cements Ltd., Orient Cement Ltd. and India Cements Ltd.

The ramp up of assets acquired from the Jaypee Group led to higher volume growth for India’s largest cement maker—Ultratech Cement Ltd. Weak rural demand in Gujarat, however, weighed on the company’s volume growth, according to its exchange filing.

While Ultratech Cement and ACC also have exposure to the western market, their presence in the southern states has cushioned their volume growth.

More than 50 percent analysts, or 21 out of 41, have ‘Buy’ rating on Ambuja Cements, suggesting a potential upside of more than 14 percent on the counter. Most of the brokerages have maintained their rating on the stock, anticipating cost-deflation benefits for the calendar year 2019.