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The stock prices of the top two cement players — ACC and UltraTech Cement — were down marginally post announcement of their results. However, both companies managed to improve their bottomlines during the June quarter of 2017.
Net profit was up 15 per cent for UltraTech Cement over the previous year, while it was up a huge 33 per cent for ACC. While ACC reported a profit after tax of ₹326 crore, it was ₹897 crore for UltraTech.
While improvement in price realisation helped UltraTech put up better financial numbers, it was volume growth from its expanded capacity that provided the booster for ACC. ACC and UltraTech reported sales of ₹3,329 crore and ₹6,938 crore, respectively, for the June quarter, up 18 per cent and 6.2 per cent, respectively. Volumes were up 10 per cent for ACC to 6.7 million tonnes (mt) on the back of new capacity addition made in the East. Volume growth was stronger compared to the 4 per cent volume growth witnessed in the March quarter.
In contrast, volumes remained at about the same level for UltraTech at 13.2 mt during the June quarter of 2017, compared to the previous year. The results of Ultratech include those of the cement plants of Jaiprakash Associates and Jaypee Cement (totalling 21 mt) acquired with effect from June 29.
Power and fuel costs weighed heavily on the cement manufacturers. It was up 33 per cent for UltraTech and 19 per cent for ACC. Pet coke prices were up 100 per cent y-o-y, while coal prices also increased. Moreover, material costs were up with increase in slag prices, thanks to the shortage of this input.
ACC has one of the highest cost structures in the industry which is weighing heavily on its stock valuations.
ValuationsThe share price of both ACC and UltraTech are up about 30 per cent since the start of the year. The stock of ACC is currently quoting at an enterprise value of $143 a tonne, close to its replacement value. The stock of UltraTech Cement was quoting higher at $203 a tonne; being given a substantial premium for its market leadership and efficient operations.
OutlookWhile ACC’s volume growth is encouraging, it also largely came from its expanded capacity. For UltraTech Cement, merger saved the day. With the onset of monsoons, cement demand could slow down over the next few quarters. Investors should sit on the fence till they spot signs of broad-based pick-up in demand.
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