Ambuja improves on operational costs but margins disappoint

May find it tough to grow volumes, given capacity limits; benefit from commissioning of clinker unit only in 2021

Ambuja Cements’ performance for the March quarter was below expectations owing to lower-than-expected volumes and realisation. 

Sales volume, at 6.37 million tonnes (mt), grew just 2.4 per cent year-on-year (YoY) despite st­rong demand during the qu­arter (Q1; accounting year is January-December). Ana­lysts at Motilal Oswal Securities had anticipated volumes to be 6.53 mt. 

Earlier, UltraTech and ACC (Ambuja’s subsidiary), the pan-India cement players, had reported much better volume growth of 16 per cent and 5.6 per cent, respectively, for the March quarter.

Moreover, Ambuja being a re­gional player — with presence in West and Nor­t­h India, was also expected to report good realisation im­pr­­o­­vement. This is because the western region had seen prices per 50kg bag im­­prove significantly to Rs 303, from Rs 275 in the year-ago quart­e­r and Rs 283 in the previous quarter. 

However, contrary to expe­c­­tations, Ambuja’s realisations de­­clined 0.9 per cent sequenti­a­lly, according to analysts’ calculations. Re­venues at Rs 2,847 crore, alth­o­ugh up 3 per cent YoY, missed Bloom­b­e­rg’s estimates of Rs 3,034 crore. 

With soft realisations, earnings before interest, tax, depreciation and amortisation (Ebitda) declined by about 6 per cent YoY to Rs 382.6 crore, missing estimates of Rs 538 crore by a big margin. 

Per tonne profitability, acc­o­rding to analysts’ calculati­o­ns, came to Rs 601, down from Rs 655 YoY. 

Ultra­Tech had reported a per tonne profitability of Rs 1,039 for the March quarter and ACC’s stood at Rs 589. 

Thanks to higher other in­c­ome, boosted by dividend fr­o­m ACC and reversal of in­c­o­m­e tax, net profit at Rs 427 crore was up 57.1 per cent YoY.

Among the few positives were double-digit sequential sales growth of premium products launched recently and sequential decline in operating costs at Rs 3,836 crore from Rs 4,012 crore.

Ambuja may find it difficult to grow volumes due to capacity constraints and may benefit from commissioning of its clinker unit only in 2021, say analysts. The improving realisations scenario bodes well. 

Binod Modi of Reliance Securities believes that the company’s operational performance is likely to improve in subsequent quarters, mainly on account of strong recovery in realisations witnessed in the last two months and improved operational performance sequentially. 

Consequently, he has raised his target price for the stock of Ambuja Cements, implying 10 per cent upside from the current levels of Rs 221.