Outlook for Cement companies stands firm
Three top players, Ultratech, Ambuja, and ACC have put up a robust performance in Q1
Cement shares appear to be on a strong bull-run. The share prices of cement majors have comfortably outrun the Nifty over the past month and over the past year, too. The industry’s fortunes are linked to activity in the real estate industry and to construction, in more general terms.
Since construction is mainly driven by infrastructure activity, this is a key factor. The 2021-22 Budget has a strong infrastructure focus and, despite the lockdowns, project activity is up. The industry has a natural defence against imports because cement is hard to transport by sea.
The year-on-year (YOY) results of cement firms will be boosted by a low base effect due to lockdowns in Apriljune 2020. ACC (with a Januarydecember financial year) reported a jump in PAT to ~569 crore in the June quarter (with ~38 crore to exceptional items) versus ~269 crore in the corresponding period a year ago.
ACC’S revenue in the June quarter jumped over 49 per cent to ~3,884 crore, versus ~2,602 crore the previous year. In the March quarter, however, the revenues were ~4,292 crore, with PAT of ~557 crore. PBDIT in the June quarter was ~874 crore, versus ~525 crore YOY, and ~859 crore the previous quarter.
Ultratech Cement’s reported consolidated profit more than doubled to ~1,700 crore in the June quarter, against ~793 crore YOY, which beat expectations. Revenue from operations jumped 54 per cent YOY to ~11,830 crore in the quarter, against ~7,671 crore the previous year. PBDIT rose 51 per cent YOY to ~3,308 crore, versus Rs 2,078 crore last year. Ultratech also said that its capital expenditure plan will augment its capacity to 136.25 million tonne by end of 2022-23. Sequentially, the revenues fell versus March quarter, when net sales were ~13,966 crore, while PBDIT was ~3,513 crore. Production costs were up 10 per cent mainly on account of higher fuel prices. In its advisories, it warned against the negative impact of a possible third wave.
Ambuja Cements reported consolidated operating revenues of ~6,978 crore in the June quarter, compared to Rs 7,714 crore the previous quarter and ~4,644 crore last year. The company posted PAT of ~1,161 crore in June quarter, versus ~1,228 crore the previous quarter and ~593 crore a year ago. Ebitda was ~1,904 crore in the June quarter, versus ~1,935 crore in the March quarter and ~1,233 crore a year ago.
All three companies saw substantial reduction in inventories, which is a good signal, and stable financing costs, which can be attributed to lower interest costs as well as faster offtake, reducing working capital needs. However, power and fuel costs are up substantially — this is a serious input for any cement manufacturer.
The results have beaten the Street estimates on Pat/earnings, although revenue expectations may have been a bit higher. Higher input prices due to rising fuel prices is one area of concern, the other apprehension is, of course, a third wave.
Cement is a commodity, with price and distribution being more critical than branding, and other cement manufacturers have also seen rising share prices. Most analysts remain bullish about the sector and the technical trend is up.