Ambuja Cements Stood Out Among Peers In A Lockdown-Marred Quarter

Ambuja Cements Ltd. stood out among peers in the quarter ended June even as volumes declined after the coronavirus lockdown stalled all operations.

The unit of LafargeHolcim Ltd. reported an improvement in realisations, or average selling price per unit, aided by price hikes. That compares with flat realisations for ACC Ltd.—another entity of the world’s largest cement maker—and a decline for UltraTech Cement Ltd., according to data compiled by BloombergQuint.

Also, stringent cost cuts, higher efficiency, lower power and fuel expenses, along with a rise in prices during the quarter led to better-than-expected operational performance for all the three companies. Ambuja Cements’ Ebitda per tonne rose to the highest ever.

This came at a time the government restricted production and movement of people as it tried to prevent the spread of the Covid-19 pandemic. That dealt a body blow to India’s construction sector, which according to Edelweiss Securities, was already grappling with lower capex amid rising fiscal stress. The world's biggest lockdown completely stalled operations in April and most of May before the nation started easing restrictions.

Here are key performance parameters of pan-India cement makers:

Volumes

Even as all pan-India cement makers reported a contraction in volume amid the coronavirus lockdown, Ambuja Cements saw the least decline.

Volumes, however, are expected to remain muted in the quarter ended September as well, which is a seasonally weak period due to monsoon.

UltraTech Cement, in a post-earnings conference call, said utilisation could be lower than the normal 60% for the June-September period on account of Covid-19-led disruptions and monsoon. It expects things to start normalising after the Diwali festival season.

Realisations

Ambuja Cements’ realisations grew 3% year-on-year in the quarter ended June even as volumes declined.

Motilal Oswal in a report said cement realisations improved due to price hikes and higher share of trade sales in the mix. But UltraTech Cement’s greater share of less profitable white cement in sales mix offset the benefit.

Operational Performance

Ambuja Cements and UltraTech Cement have surpassed Ebitda/tonne estimates by 50% and 35%, respectively, during the quarter. to touch an all time high.

Ritesh Shah, analyst at Investec, said healthy pricing (also discounts) and cost initiatives, along with the merger supply agreement benefits led to the operational beat by Ambuja Cements.

What helped UltraTech is lower pet coke prices, a decline in freight costs and increase in share of green power, according to Amit Srivastava, vice president (research-cement and building products) at B&K Securities India Pvt.

Another thing that stood out during the quarter ended June is UltraTech Cement's efforts to pare debt.

UltraTech’s Debt Reduction

UltraTech Cement managed to bring down its consolidated debt by 1.7% sequentially to Rs 23,303 crore during the three months ended June. Its standalone debt fell 2.23% to Rs 21,446 crore.

A drop in working capital by Rs 600 crore, along with offloading of a 92.5% stake in one of the overseas subsidiaries for an enterprise value of $120 million, helped the Indian company.

UltraTech Cement plans to further deleverage by divesting its Dubai unit and selling down its outstanding loan to Binani 3B—the fibreglass company. In the last nine months, the company has been able to release Rs 6,000 crore from free cash flows.

But the cement maker, in its concall, said there won’t be any more reduction in working capital, and it’s facing difficulties in finding suitable investors for its Dubai unit.

Analyst View

Analysts are bullish on all three cement makers. The average of 12-month Bloomberg consensus target price shows the highest potential upside for ACC, followed by Ambuja Cements.