Strong realisations help Ambuja Cements beat Street estimates in Q2

Higher volumes and realisations helped Ambuja post sales of Rs 2,823 cr, a YoY increase of 11.7%

Ambuja Cements reported an all-round beat in standalone performance for the quarter ending June 2017 (Q2), its second quarter as the company follows the January-December financial year. At 6.14 million tonnes, sales volumes grew by a healthy 5.3 per cent year-on-year and were 6.11 per cent higher than the March 2017 quarter. While its subsidiary, ACC, had reported a higher 10 per cent volume growth, it was also helped by capacity expansions. UltraTech, on the other hand, had reported flat volumes during the June quarter and, in this backdrop, Ambuja's volume growth is worth mentioning.

Apart from volumes, the realisations also improved. The latter was helped by rising cement prices in Western India, from where Ambuja derives up to 40 per cent of its sales. During the June quarter, average prices of Rs 290 per 50-kg bag in West India were much higher than the Rs-277 price seen in the previous quarter and marginally lower than Rs 291 seen in June 2016 quarter. This helped per tonne realisations rise 10.9 per cent sequentially to Rs 4,598 came (up six per cent year-on-year). The year-on-year growth has been fuelled by average cement prices in North India, which, at Rs 293 for every 50-kg bag, were significantly higher than Rs 278 in the year-ago quarter and slightly lower than Rs 295 in the previous quarter.

Realisations also helped the company counter surging costs such as power and fuel expenses (Rs 565 crore), which grew 20.8 per cent year-on-year, thanks to rising coal and pet coke prices. Operating Ebitda (earnings before interest, taxes, depreciation and amortisation) stood at Rs 651 crore, higher than Rs 598 crore in the year-ago quarter and significantly ahead of the Rs 544 crore figure indicated by Bloomberg consensus estimates.

The company said that topline growth, driven by increased sales and value-based pricing, helped mitigate higher costs due to the rising prices of fuel, packaging, and other manufacturing materials.

Higher volumes and realisations helped Ambuja post sales of Rs 2,823 crore, which is a year-on-year increase of 11.7 per cent and about six per cent ahead of Bloomberg consensus estimates of Rs 2,672 crore. At Rs 392 crore, the net profit came 12 per cent ahead of estimates of Rs 350 crore.

On a per tonne basis, Ambuja's Ebitda at Rs 998 was ahead of Rs 992 in the year-ago quarter and significantly higher than Rs 597 in the previous quarter. UltraTech had reported Ebitda per tonne of Rs 1,182, while ACC's was Rs 736. This should bode well for Ambuja’s stock price, too, which has been rising regularly in the past few months and stood at Rs 267.8 levels, up 0.94 per cent, on Tuesday. Results were declared post market hours.

Nevertheless, it is sustaining this performance and volume growth prospects that will drive significant upside from current levels. Binod Modi at Reliance Securities does not expect this kind of strong performance to repeat at least for the rest of current year 2017 due to visible pricing pressure in current months and cost pressures. Meanwhile, progress on the ACC-Ambuja Cements merger could add to the sentiment in the interim.