Outlook remains healthy, and UltraTech could see even more gains
UltraTech Cement, along with LafargeHolcim group entities Ambuja Cements
and ACC, delivered a resilient performance in the September quarter (Q2), boosting Street sentiment.
The rebound in demand, following the lockdown-led disruption in the June quarter, led to higher realisation. This, coupled with cost control and efficiency gains, gave a fillip to operating performance and net profit. Further, UltraTech and Ambuja saw strong volume growth, given their higher exposure to north India. ACC, however, reported flat volumes because bulk of its sales come from south, central and east India.
Nevertheless, the significant improvement in per-tonne profit has led to major earning upgrades. Outlook remains healthy, and UltraTech could see even more gains.
The Aditya Birla group firm registered 8 per cent growth in domestic sales volume to 18.52 million tonnes (mt) on a normalised basis (20.06 mt on a consolidated basis including exports).
Ambuja, too, reported similar growth in sales volume to 5.67 mt. ACC — in which Ambuja holds 50 per cent stake — is a pan-India player and therefore comparable to UltraTech. ACC’s volumes were little changed, at 6.49 mt.
Though all three reported better-than-expected volumes, UltraTech’s large base hasn’t stopped it from growing at a brisk pace. Motilal Oswal Securities has estimated sales volume of 19.4 mt, 5.6 mt, and 6.3 mt for UltraTech, Ambuja, and ACC, respectively. On the realisation front, too, the three firms scored well. The average all-India cement price per 50 kg at Rs 358 was up 3 per cent year-on-year (YoY), driven by the steep price rise in the south, where cement prices rose 13.33 per cent YoY.
Given its higher exposure to the south, ACC saw 3.4 per cent growth in realisations to Rs 5,090 a tonne. UltraTech, too, benefited and realisations grew 3 per cent to Rs 4,874 a tonne. Ambuja, being a regional player, saw per-tonne realisation improve 1.1 per cent to Rs 4,942 a tonne, according to analyst calculations.
Cost-control measures by ACC and Ambuja also impressed, while UltraTech was already a cost-efficient manufacturer. Analysts say synergy benefits from the merger and clinker-sharing arrangements are showing results for ACC and Ambuja, lifting their forward earnings outlook.
UltraTech led the pack in terms of per-tonne profit improvement, reporting per-tonne Ebitda at Rs 1,343 — higher than Rs 1,026 in the year-ago quarter.
Ambuja and ACC, too, saw significant improvement with per-tonne Ebitda of Rs 1,111 and Rs 918, compared to Rs 707 and Rs 747 last year. The improvement in per-tonne profit has led to upgrades in forward estimates. HDFC Securities has increased ACC’s and Ambuja’s Ebitda estimates for CY20 by close to 6 per cent each, and for CY21 by 4 per cent and 7 per cent, respectively.
UltraTech saw even higher upgrades, with Ebitda estimates for FY21 and FY22 rising 11 per cent and 7 per cent, respectively.
Ambuja and ACC, though, trail in capacity expansion. UltraTech, though, has grown through expansion and acquisitions, and will now see fresh capacities coming on stream, which enhances its forward outlook. New capacities (3.2 mt clinker and 1.8 mt cement) in Rajasthan are set to be commissioned in the June 2021 quarter, which would ease the concern of capacity constraint, says Binod Modi of Reliance Securities.
ACC will see 6 mt in fresh capacity coming up on stream. Grinding capacity expansion of 1.1 mt in Sindri (Jharkhand), is expected by March 2021, while capacity expansion of 4.8 mt in the central region is expected by CY22-end in the east (initial phase of 1.5 mt to commence in CY21).
However, UltraTech — with expanded capacities in place — should reap higher benefits from the demand uptick. The 14.6-mt cement plants acquired last year have been integrated, and the company is investing further in improving operations.
With 131 mt of capacity, UltraTech will continue leading both peers, which have combined capacity of 64 mt, say analysts.