)
After UltraTech’s disappointing numbers, it was Holcim group companies ACC and Ambuja Cements’ turn to disappoint the Street with the September quarter performance.
ACC's net profit at Rs 121 crore was not only less than half the level in the September 2012 and June 2013 quarters but much lower than the consensus estimate of Rs 193 crore. Similarly with Ambuja, whose profits at Rs 166 crore were down 46.5 per cent year-on-year and much lower than the consensus estimate of Rs 218 crore.
This was despite ACC’s and Ambuja’s volumes at 5.5 mt (million tonnes) and 4.9 mt coming marginally higher than 5.4 mt and 4.8 mt, respectively, in the year-ago quarter. Soft demand leading to drop in realisation has been a major cause of disappointment for companies. Average all-India prices have been softer by Rs 21 a 50-kg bag (down six to seven per cent) over those of the September 2012 quarter and Rs 9 a bag (about three per cent) in the June 2013 quarter. This has hurt the profitability of companies, also seeing increasing cost pressures due to higher power, fuel and freight costs.
Thus, ACC's earnings before interest, taxes, depreciation and amortisation (Ebitda) of Rs 287 crore for the September quarter was much lower than the Rs 466 crore a year before and Rs 489 crore in the June quarter. It was also lower than the estimate of Rs 343 crore. Ebitda margins at 11.4 per cent declined 770 basis points year-on-year and 610 bps sequentially. Ambuja saw its margins (12.7 per cent) at multi-year lows, while Ebitda at Rs 255 crore was lower than the consensus estimates of Rs 358 crore.
ACC’s revenue at Rs 2,509 crore, though, was 3.2 per cent higher than the year-ago quarter as well as the consensus estimate of Rs 2,475 crore. The September quarter numbers included Rs 162 crore in contribution of the readymix concrete segment, absent in the year-ago quarter. Analysts, though, had factored this in. Ambuja’s revenue, on the other hand, at Rs 2,005 crore had declined 7.5 per cent year-on-year and 14.5 per cent sequentially, and were much lower than Street expectations of Rs 2,348 crore.
Though ACC and Ambuja’s September quarter performance was disappointing and weaker than expected, ACC’s stock closed only marginally lower at Rs 1,154, while that of Ambuja lost slightly more than one per cent on Thursday to close at Rs 194. This can be explained as due to optimism on the sector’s outlook. ACC is also trading at relatively cheaper valuations.
The ACC and Ambuja stocks have seen a good 26 and 31 per cent run-up on the bourses from their 52-week lows of Rs 912 and Rs 148, respectively on August 28. This has been due to price increases since September, in anticipation of recovery in demand after the monsoon. The optimism is led by hope of a good monsoon pushing up rural demand and pre-election spending by the government also boosting cement demand from the infrastructure sector, though analysts say there are no concrete signs of these yet. While the October volume numbers will provide an indication on the state of demand, many experts are not very confident of the recovery coming quickly.
V Srinivasan at Angel Broking believes that cement demand is still likely to remain subdued for a longer time, given the slow economic growth. He maintains his 'Accumulate' rating on the ACC stock after the results due to comforting valuations and a ‘Neutral’ rating on Ambuja.
ACC is currently trading at a replacement cost of $90 a tonne compared to UltraTech’s $160 a tonne, Ambuja’s $170 a tonne and Shree Cement’s $120 a tonne. The consensus target price for the ACC and Ambuja stocks (from analysts polled by Bloomberg after the results) is Rs 1,176 and Rs 162, respectively.
