UltraTech scores over ACC in March quarter due to strong volume growth

UltraTech Cement’s better-than-expected performance for the March 2019 quarter has lifted the Street’s sentiments that seemed soft after weaker-than-expected performance posted by ACC a day earlier.

UltraTech’s stock was trading weak on Wednesday initially, though it comfortably closed in the green with gains of about 5 per cent, while ACC stock, in contrast, closed over 3 per cent lower.

UltraTech’s domestic sales volumes grew 16 per cent year-on-year (YoY), way ahead of 5.6 per cent growth reported by ACC in the March quarter. While both cement majors are pan-Indian players, UltraTech’s continued capacity expansion over the past few years, which is aiding its volume growth when demand turns positive, is working in favour of the company. ACC, on the other hand, has seen limited capacity expansions and mostly limited to east India.

Bogged by lower volume growth compared to UltraTech, ACC’s net sales at Rs 3,850 crore — up 8.2 per cent YoY — was also lower than the Street’s estimates of Rs 3,946 crore. The company also saw lower-than-expected per tonne realisations, and at Rs 4,690, it expanded by just 1.4 per cent YoY and 1.2 per cent sequentially. As volumes remained concentrated in the eastern region, where the average realisation remained flat sequentially, it has affected ACC’s overall realisations.

Consequently, ACC’s operating performance, too, didn’t meet expectations. Analysts say the increase in lead distance and lower linkage coal has affected its operating costs. Therefore, even if earnings before interest tax depreciation and amortisation (Ebitda) rose by 9 per cent YoY in the March quarter and 21 per cent sequentially at Rs 461.5 crore, it fell short of Bloomberg’s consensus estimates at Rs 597 crore. The company’s per tonne profitability stood at Rs 589, not much higher than Rs 573 and Rs 513 in year-ago and previous quarter, respectively, according to analysts at Reliance Securities.

Comparatively, UltraTech’s performance on all these fronts was better than ACC’s. It reported a much higher per tonne profitability at Rs 1,039 crore — up 12.7 per cent YoY and up by a wider margin of over 30 per cent sequentially.

UltraTech’s reported Ebitda at Rs 2,213 crore jumped 30 per cent YoY. While the company’s input cost per tonne (which includes cost of power, fuel, and raw material) largely remained flat, a sharp decline in freight cost per tonne (down 7.6 per cent YoY) and decline in other expenses per tonne (down 7 per cent YoY) brought significant benefit to operating costs per tonne.

UltraTech is benefiting from its acquisition, which is also reflecting in its earnings. After a successful integration of 21.2 million tonne per annum (mtpa) acquired from Jaypee Associates in 2017-18, the capacities are functioning in line with the company’s other plants.

UltraTech is also working on lifting performance of acquired Nathdwara plant earlier owned by Binani Cement, with installed capacity of 6.25 mtpa.

With capacities largely overhauled, its capacity utilisation had improved to 72 per cent in the March quarter versus 50 per cent in the December quarter. Improved petcoke usage from zero to 40 per cent during the quarter and other cost-control measures implemented have led to average cost of production reducing by Rs 200 a tonne since the acquisition of Nathdwara plant.

UltraTech’s Ebitda per tonne has improved to Rs 830 (excluding one-offs), from Rs 740 a tonne last quarter. The company is working on increasing utilisation to 80 per cent and reducing costs by Rs 50 a tonne.

UltraTech is also aiming at deleveraging its balance sheet. In the March quarter, it reduced its working capital requirement by Rs 900 crore and brought down its leverage by 0.73 times. After UtraTech’s results, Binod Modi of Reliance Securities said he remains positive on the stock.

ACC’s strong penetration in rural markets and consistent focus on premium products is expected to drive its operating performance and lead to better realisation in its core markets.