CEMENT – GETTING READY TO BUILD-UP

Yesterday, ACC announced its Q3CY20 earnings and it was a BIG hit, beating all estimates– a harbinger of things to come. Ambuja Cement is scheduled for 22^nd Oct, Thursday.

ACC, which follows the Jan-Dec financial year, posted a good 20% (YoY) jump in consolidated net profit at Rs.364 crore, beating all estimates. This was on a flattish net revenue at Rs.3468 crore v/s Rs.3464 crore.

Cost reduction was at its best which is why EBITDA rose 21% at Rs.671 crore while margins went up from 16.1% to 19.4%.

But more than the numbers, it is the industry trend which ACC presented which is more interesting and gives us an insight into ‘what to expect’ in the coming months.

ACC said:

• Industry trends has been in line with the economy, seeing demand recovery in July - Sep quarter
• Demand has been better in retail and rural segment, with gradual pick-up in demand from commercial and industrial segment

Looking ahead, ACC said:

Further demand growth to be driven by: • Affordable Housing and rural housing, roads and allied activities supported by good monsoons • Revival of infrastructure projects and construction

The good news is that prices have recovered in July- Sept quarter and it is only expected to move up further. During Q3CY20, ACC’s net selling price rose 3% (YoY) from Rs.4743/tonne to Rs.4877/tonne.

With monsoon fading, easing of lockdown restrictions and demand recovery, construction activities have indeed started picking up. Across India, there is already a 2% month-on-month rise in cement prices – this price rise is happening after four consecutive months of fall.  

Prices in North and Central markets increased 5% (MoM) a demand rose and return of migrant labourers to the metro cities.  Price remained stable in East and West India while in the South, it rose 2%.

Demand had picked up with great gusto in Sept itself and we see the same trend of a strong demand tailwind into Oct also. Inflation will lead to costs going up but the cement companies are certain to hike prices to sustain their margins.

South based companies, for Q2 might show pressure in their earnings as there were stricter lockdowns during this period and labor shortage issues remain.  But others, like ACC, are expected to show a robust July-Sept quarter.

Our Editor, Mr.SP Tulsian is optimistic about the sector and recommends JK Lakshmi Cement and NCL Industries. He expects mid and small cap cement companies to give you more gains.