Sales numbers for India’s top cement companies — UltraTech Cement, ACC and Ambuja Cement — were up by 20 per cent or more y-o-y during the September quarter of 2017-18. While the figures for both UltraTech and Ambuja increased by 20 per cent, ACC saw a 26 per cent rise in sales, driven by strong volume growth.
One should not, however, jump the gun; recovery in cement demand is yet to happen on a large scale, driven by consolidation and expansion initiatives.
UltraTech, which made ₹6,936 crore during the September quarter, clocked volumes of 13.1 million tonnes (mt) — 18 per cent higher than the previous year — during the period. However, the growth was largely driven by the increase in capacity (from 66 mt to 89 mt) post the acquisition of Jaypee Cement’s assets. In the recent conference call for Q2 results, the UltraTech management mentioned that volume growth for the industry as a whole continues to be in ‘low single digit’.
ACC’s sales were up to ₹3,054 crore as compared to the previous year. It reported an 18 per cent growth in volumes to 6 mt in Q2, clocking the highest growth in the last six years. A key reason for this was addition to capacity in the Jamul plant in Chhattisgarh, which constituted 10 per cent of its overall capacity. Moreover, there was a healthy improvement in price realisation, which was up by 7 per cent to ₹4,645 per tonne.
Sales at Ambuja Cement were up to ₹5,376 crore in Q2, on the back of a rapid growth in volumes, that were up 12 per cent y-o-y to 5 mt, and a 3 per cent growth in price realisation to ₹4,621 per tonne during the September quarter.
A closer look
However, in terms of profit after tax (PAT), there was a difference in performance of the above three companies. UltraTech’s PAT was down 31 per cent to ₹423 crore (from Q2 of last year). The company took a hit after the takeover of loss-making assets from Jaypee Cement.
The cost pressure — higher petcoke and coal prices — also impacted UltraTech’s profitability. Energy costs were up 26 per cent, y-o-y led by higher petcoke prices, while logistic costs were up a further 5 per cent (driven by a 7-per cent increase in diesel prices). The company expects to break even at the cash level for its acquired assets by March 2018.
ACC’s net profit, in contrast, was up by 102 per cent to ₹181 crore during the September quarter. It was led by a strong improvement in volumes, which to some extent was negated by increase in raw material costs and that of power and fuel. However, going forward, the company is expected to clock volume growth close to that of the industry (6-7 per cent over the next three years) as the base effect of the capacity addition tapers off.
Ambuja Cement’s net profit was up by 50 per cent to ₹351 crore during the same period. It is on the back of increase in demand in the northern and western regions, which is expected to continue. However, increase in cost of raw materials, power and fuel impacted its operating margins.
In short, the Q2 results analysis of the top three cement companies indicates that the topline has improved — either because of capacity addition or revival in select markets (say, the West). However, broad revival in cement demand in the country is yet to happen.