Cement stks extend gains on strong performance by sector majors in June qtr

Shares of cement makers continued on an upward trajectory and gained up to 4 per cent in an otherwise subdued market on Wednesday, after sector majors UltraTech Cement, ACC, and Ambuja Cements reported strong operational performances in the April-June quarter.

JK Lakshmi Cement, UltraTech Cement, HeidelbergCement India, Dalmia Bharat and JK Cement were up in the range of 2 per cent to 4 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.39 per cent or 152 points at 38,341 at 10:53 am.

UltraTech Cement was up 4 per cent to Rs 4,286, surging 11 per cent in the past two trading days, after the company delivered big beat on Ebitda (earnings before interest, taxes, depreciation, and amortization) level led by cost optimization and pricing tailwinds.

The company said it reported a consolidated Ebitda of Rs 2,353 crore for the quarter. Analysts, on an average, had expected Ebitda of Rs 1,702 crore. It also clocked its highest ever Ebitda/t of Rs 1,416, up 24 per cent sequentially, driven by lower-than-expected costs.

“The 'overheads control programme' initiated by the management helped to cut fixed costs by 21 per cent year on year (YoY). Prudent working capital management and control on cash flows are reflected in a reduction of net debt by Rs 2,209 crore during Q1FY21,” Ultratech Cement said in a press release.

“Driven by strong pricing scenario post relaxation of lockdown and superior cost management by UltraTech Cement during Q1FY21, we have upgraded EBITDA estimates for FY21E/FY22E by 10.3 per cent/2.1 per cent respectively. However going ahead, we expect the pace of debt reduction to slow down and estimate incremental net debt reduction of Rs 6,900 crore over next 7 quarters (by FY22E),” analysts at YES Securities said in result report.

“UltraTech Cement’s market mix has improved post acquisitions, with the stronger markets of northern/central India contributing 45 per cent to volumes. The valuation is reasonable at 11.2x FY22E EV/EBITDA and USD146/t of capacity, a 35 per cent discount to the past five-year average and 20 per cent discount to the past 10-year average. The stock is also trading 35 per cent cheaper than peer Shree Cement v/s the historical average of 10 per cent,” Motilal Oswal Securities said in results update.

According to analysts at Emkay Global Financial Services, cement prices have risen 6 per cement quarter on quarter (qoq) in Q1FY21, with price hikes across regions (4-6 per cent qoq in all regions except the South region where prices increased 13 per cent qoq).

Despite some fall in cement prices in Jul’20, current prices are 4-4.5 per cent above estimates. The brokerage firm has factored in a 19 per cent yoy fall in cement demand in FY21E but the recovery in cement demand in markets such as North, Central and East has surprised positively. "Higher cement prices and better-than-estimated demand may trigger earnings upgrade for companies under coverage," it said.

COMPANY	LATEST	1-MONTH AGO	GAIN(%)
JK LAKSHMI CEM.	301.95	249.85	20.9
AMBUJA CEMENTS	215.25	187.60	14.7
THE RAMCO CEMENT	718.70	635.15	13.2
ULTRATECH CEM.	4239.60	3808.40	11.3
J K CEMENTS	1495.00	1363.15	9.7
ACC	1403.70	1290.50	8.8
BIRLA CORPN.	609.40	568.75	7.2
HEIDELBERG CEM.	185.45	176.50	5.1
DALMIA BHARAT LT	731.90	698.20	4.8