From ACC To UltraTech, Large Cement Makers Beat Estimates In June Quarter But Analysts Flag A Concern

Cost cuts and higher realisation as prices remained stable in an otherwise lean period aided India’s top cement makers’ June-quarter earnings. Analysts, however, doubt that the sector will be able to maintain margins as commodity prices rise.

Pan-India players ACC Ltd., Ambuja Cement Ltd. and UltraTech Cement Ltd. beat analyst estimates, while peers Dalmia Bharat Ltd. and Shree Cement Ltd. managed to meet expectations.

All large cement makers saw their costs rise in the quarter ended June. Cement makers expect prices hikes to offset commodity inflation. The festive season will be a key trigger for demand revival and determine if companies can increase prices, apart from cost cuts.

ACC, Ambuja and UltraTech beat Ebitda per tonne estimates by improving their efficiency.

ACC And Ambuja Cement: The Holcim Group companies benefited from the renewal of master supply agreement between the two. That helped them cut fixed costs and optimise network to reduce lead distance—between facilities and market, according to brokerages including UBS, Citi and JPMorgan. Their freight costs remained stable even as diesel prices rose.

Twin surprises on cost and realisations took ACC’s operating income per tonne to Rs 1,280, the highest in 47 quarters, according to a Jefferies note. The brokerage attributed it to the renewal of the master supply pact.

UltraTech Cement: According to JPMorgan, UltraTech underperformed peers as it’s not able to command pricing power.

Dalmia Bharat: Operating income per tonne rose 18% sequentially mainly due to higher realisation and cost cuts. That was led by a change in product mix, which kept the margins intact, according to a Motilal Oswal note.

Shree Cement: It underperformed peers because of higher power and fuel costs, loss of volumes in the eastern market. The company told BloombergQuint that it expects margin to remain stable and will be able to manage costs.

Pressure On Margins Likely

Analysts, however, expect pressure on margins to continue as rising costs will offset price stability. Fresh capacity coming up in the second half of the fiscal from companies including Ambuja may also weigh on pricing power, according to JPMorgan.

HM Bangur, chief executive officer at Shree Cement, is optimistic about an average 2-3% sequentially increase in cement prices in the ongoing quarter ending September because of higher prices of petcoke and coal. But he agreed, in an interview, that if demand doesn’t pick up, commodity inflation may impact margins.

Mahendra Singhi, chief executive officer at Dalmia Bharat, is more confident. Prices may pick up momentum after September due to pent-up demand and also vaccination drive, he told BloombergQuint.