Ambuja's sales dip spoils show

Core performance supported by prices; concerns remain

Ambuja Cements, like its group company ACC, clocked lower-than-expected sales volume for the fourth quarter ended December (Q4; both follow January-December year). Ambuja’s eight per cent decline in sales volume is less than ACC’s nine per cent fall in Q4. UltraTech saw two per cent dip and Shree Cement clocked 4.1 per cent growth.

While Ambuja lagged rivals UltraTech and Shree Cement on sales volume, it did pretty well on sales realised from each unit, as prices in north saw less impact from note ban. Sales realisation improved one per cent from a year ago to Rs 4,316 per tonne in Q4; sequentially the figure was a bit lower. However, a steep decline in sales volume brought down net sales 6.8 per cent from a year ago to Rs 2,197 crore, lower than Bloomberg consensus estimate of Rs 2,219 crore. 

Better prices and cost controls helped Ambuja report an operating or core profit of Rs 329 crore (although flat when pitted against the year-ago figure). Net profit at Rs 176 crore was slightly higher than estimate of Rs 170 crore. Results were announced on Monday evening, and on Tuesday the stock fell three per cent intraday, closing 0.4 per cent lower over Monday’s close.

As note-ban impact eases, sales volume and prices should recover from cash-crunch blues. Also, better capacity use could mean better operating (core) efficiencies. Gains in sales volume may not move the needle much in January-March quarter, given the high base of sales volume last year. 

Further, all over India, per 50 kg prices have improved Rs 6 in February, going by Kotak Institutional Equities, although still lower by Rs 7 when seen against September quarter. Pet-coke prices have risen to $85-90 a tonne in January-March quarter from $48 a tonne a year ago, sparking near-term caution.

Medium-term concerns are Ambuja’s pending merger with ACC and the company lagging behind others on capacity addition. Although capacity use below 70 per cent gives leeway to tap demand, only capacity expansion can stem market-share loss over the past few years, says JM Financial. CLSA says although management is hopeful of demand improvement fuelled mainly by government initiatives, static capacity shows lack of commitment even as rivals UltraTech and Shree focus on their next phase of expansion. Ambuja’s stock at Rs 237 is trading at per-tonne capacity replacement cost of $140, based on 2017 estimate, versus $206 and $223 for UltraTech and Shree, based on FY18 estimates.