Lower realisation, higher cost drags Ambuja Cements's Q3 performance

Muted volume growth expectations keep analysts cautious on CY19 profit growth

Ambuja Cements saw the dual impact of higher costs and lower realisations pull down its December 2018 quarter profitability. While many of its peers, too, had seen similar pressures, Ambuja numbers were impacted further by relatively softer volume growth. Cement sales grew 4.4 per cent year-on-year to 6.1 million tonnes (MT). ACC had reported 8 per cent year-on-year growth, while UltraTech and Shree Cement’s volumes grew  14 per cent and 12.9 per cent, respectively. Ambuja Cements, which has lagged capacity additions compared to its peers, continues to feel the impact of the same, say analysts.
 
With cement prices subdued, Ambuja’s per tonne realisations, too, fell by 1 per cent year-on-year to Rs 4,510. The rising costs (fuel and logistics) further aggravated the impact on its margins. Overall, costs per tonne went up by 8 per cent, pulling down operating profits by 20.5 per cent year-on-year to Rs 404 crore.

 
A tax writeback of Rs 372 crore, however, helped the company report net profit growth of 59 per cent year-on-year. However, adjusted for one-offs, profits were down 16.6 per cent year-on-year, according to analysts.
 
Per tonne profitability declined by about a third year-on-year to Rs 495. This was lower than Rs 513 reported by ACC. UltraTech and Shree Cement, on the other hand, reported much higher per tonne profitability of Rs 772 and Rs 1,067, respectively.

 
Meanwhile, Ambuja is accelerating efforts on alternative fuels, optimised fuel mix, plant efficiency improvements and new coal block commissioning. This will help optimise the fuel mix further. The company’s new 4.6 MT of cement greenfield capacity in Rajasthan is being set up.
 
However, analysts remain cautious for the near term. For one, the benefits of capacity expansions are expected to accrue only by the end of CY20 and analysts at Edelweiss Securities expect volume growth to stay muted. Further on realisations front, recent price hikes are mainly confined to specific geographies. Ambuja has no presence in south India and is expected to witness the lowest increase in realisations, say analysts at Prabhudas Lilladher, who add that this would restrict meaningful recovery in its earnings in CY19. Even Binod Modi at Reliance Securities has trimmed down his Ebitda estimate by 6.5/6 per cent for CY19/CY20, respectively, to factor in soft realisations and higher input cost.