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Informist, Thursday, Feb. 27, 2025

 

By Rajesh Gajra

 

NEW DELHI – Aided by one-off reversals and credits from tax-related reassessments of Ambuja Cements Ltd. and ACC Ltd., the aggregate net profit of the four cement companies that are a part of the Nifty 200 rose 26.7% on year in the December quarter, against analysts' estimate of a 34?ll. However, the growth in aggregate revenue was 1.5%, only slightly above the Street's view of a 0.5% growth.

 

Three of the four cement companies that are a part of the Nifty 200 outperformed analysts' respective estimate of growth in both, net profit and revenue, for each of them. These were Ambuja Cements, ACC, and UltraTech Cement Ltd. These three companies also exceeded analysts' estimate on growth in aggregate net profit and revenue of the sector.

 

Shree Cement Ltd. was the only company that underperformed the company-specific and sectoral net profit and revenue growth estimates. It was also the only company out of the four cement companies to report a fall in revenue in the December quarter. Shree Cement's revenue fell 13%. The Street also expected the revenue of the company to fall, but by a lower rate of 6%. Vis-a-vis analysts' estimate of a 10% net profit growth and a 4% revenue growth for the Nifty 200 companies, ACC and Ambuja Cement were the outperformers, and the other two companies, Shree Cement and UltraTech, underperformed.

 

VOLUME-DRIVEN REVENUE

In the December quarter, market conditions were slightly better than in the preceding two quarters on demand and volume front, but demand sensitivity to prices remained. High competitive intensity meant there was a race among most cement companies to keep prices attractive for buyers during the first two months of the quarter, while in December some of them hiked prices marginally.

 

ACC beat the Street view by a substantial margin as the reported revenue growth of 7.3% was significantly higher than analysts' estimate of 1.7% growth for the company. The other Adani group company, Ambuja Cements, also beat the analysts' revenue growth estimate, but by a small margin. The Street expected it to post 4.1% growth on year in revenue and it delivered 4.5% growth. Both the Adani group companies also beat the analysts' estimates of 0.5% revenue growth for the sector as a whole and a 4% increase in aggregate revenue of Nifty 200 companies.

 

Ambuja Cements holds 50.1% stake in ACC and its consolidated sales includes ACC's sales to the extent of its stake. ACC's sales volume jumped up by 20% on year to 10.7 million tonnes in the December quarter, while that of Ambuja Cements rose 17% to 16.5 million tonnes on a consolidated basis. But a fall in sales realisations led to ACC's revenue increasing by just 7.3% on year, while that of Ambuja Cements was up by only 4.5%.

 

The country's largest cement manufacturer, UltraTech, sold 30.4 million tonnes in the December quarter, up 11% on year, on a consolidated basis. The consolidated revenue growth of the company was 2.7% on year against analysts' estimates of a marginal increase of 0.2% in the revenue. UltraTech also outperformed the analysts' estimate of 0.5% revenue growth for the sector, but underperformed the 4% growth estimate for Nifty 200 companies.

 

UltraTech's revenue outperformance was clearly due to better-than-expected demand, though it was still subdued as compared to the demand for Nifty 200 companies in some sectors, and compared to the strong distribution network that the company commands in the country. The volume growth of 11% was strong but revenue growth at 2.7% trailed it by a substantial margin. This was due to a 7.4?ll in its blended realisation, JM Financial Institutional Securities said in an earnings review.

 

Shree Cement's revenue fall of 13.1% on year not only missed analysts' estimate of 5.9?ll for the company but also underperformed the sector-level revenue growth estimate of 0.5% and the aggregate revenue growth estimate of 4% for Nifty 200 companies.

 

Shree Cement's volume declined 1.3% on year, broadly in line with analysts' expectations. Analysts said the management of Shree Cement pursued value over strategy, where the share of premium cement products jumped up to 15% in the December quarter from 9.5% in the year ago quarter. However, this was not reflected in the blended realisation which fell by 11-12% on year according to analysts' calculations. The company did not hold an earnings conference call with investors after announcing its December quarter earnings, as it usually does.

 

NET PROFIT PERFORMANCE

At the aggregate level, the net profit of the four cement majors grew strongly in contrast to a fall expected by the market. At individual company level, Shree Cement missed the Street view by a narrow margin. Ambuja Cements and ACC beat analyst estimates primarily on the back of one-offs in other income and tax reversals. UltraTech beat analyst estimates by a fair margin largely on the back of operational performance but also aided by a sharp fall in tax outgo. Barring Shree Cement, the cement companies outperformed the net profit growth estimate of the sector, and barring Shree Cement and UltraTech, they also beat the Nifty 200 aggregate net profit growth estimate.

 

Analysts had estimated the net profit of Shree Cement to fall by 65% on year while the company reported a 69?ll. The company did not meet the Street view primarily due to a sharp fall of 23% in operating profit, or the earnings before interest, tax, depreciation, and amortisation, a 2.2 times surge in depreciation and amortisation expenses, and a substantial increase of five times in the expense charge on account of change in inventories. The surge in the inventory cost item offset the benefit from a 28?ll in power and fuel costs.

 

In the case of Ambuja Cements, write-backs from tax-related disputes and provisions of earlier years, and a surge in government-granted duty credits and refunds were the main factor behind the company beating the bottom line estimate by a large margin. The company's consolidated net profit rose by 2.6 times on year against the analysts' company-specific view of a 21?ll, sectoral decline of 34%, and Nifty 200 companies' 10% growth.

 

Ambuja Cements reversed large income tax provisions pertaining to earlier years against which it got favourable orders. This was reflected in a substantial fall in tax expenses and the actual tax outgo was negative in the December quarter.

 

The other income of Ambuja Cements surged seven times on year as the company reversed a large amount of interest provisions and interest received on tax refunds of earlier years for which no appeals are pending. Excluding this surge in other income and the fall in tax expenses, Ambuja Cements' net profit was down 72% on year, missing the Street estimate of a 21?ll.

 

Ambuja Cements also saw a surge in one more non-operating income - government grants including duty credits and refunds - contributing to the substantial rise in the company's net profit.

 

Part of the tax-related other income benefit Ambuja Cements got in its consolidated books was from ACC. In the case of ACC, the net profit doubled against analysts' expectation of a 35?ll. It was also above the sectoral net profit growth estimate and the aggregate net profit growth estimate for Nifty 200 companies. However, after excluding the one-off other income from reversal of interest on tax refunds of earlier years, ACC's net profit was up by only 4%.

 

In the case of UltraTech, the net profit for the December quarter declined 17.3% on year against a 26.7% expected fall, a sectoral estimate of 34?ll, and Nifty 200 companies' net profit growth estimate of 10%.

 

Apart from a low 2.7% on-year revenue growth, UltraTech also reported 8% on-year decline in its EBITDA. The decline in EBITDA was, however, limited by a 5?cline in power and fuel expenses. The fall of 17.3% in the bottom line would probably have been worse had UltraTech not recorded a 38?cline in tax expenses and a 74% jump in other income.

 

The following table shows the performance of the four companies in the cement sector vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the cement sector and the Nifty 200 index:

 

			Nifty 200 Q3 PAT growth 8.8%	Nifty 200 Q3 PAT growth consensus estimate 10%				Nifty 200 Q3 revenue growth 5.5%	Nifty 200 Q3 revenue growth consensus estimate 4%
Company	PAT beat analysts' estimate	Adjusted PAT growth %	Adjusted PAT growth estimate %	PAT beat sector estimate	PAT beat Nifty 200 estimate		Revenue beat analysts' estimate	Revenue growth %	Revenue growth estimate %	Revenue beat sector estimate	Revenue beat Nifty 200 estimate
ACC	Yes	103	-35	Yes	Yes		Yes	7.3	1.7	Yes	Yes
Ambuja Cements	Yes	157	-21	Yes	Yes		Yes	4.5	4.1	Yes	Yes
Shree Cement	No	-69	-65	No	No		No	-13.1	-5.9	No	No
UltraTech Cement	Yes	-17	-27	Yes	No		Yes	2.7	0.2	Yes	No
Aggregate of above 4:		27	-34					1.5	0.5

 

 

The following table shows the profit margins of the cement companies that are a part of the Nifty 200:

 

	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
Nifty 200	11.90%	11.50%	11.40%
Cement sector	14.00%	11.20%	5.70%
Company	PAT Margin for Dec-24	PAT Margin for Dec-23	PAT Margin for Sept-24
ACC	21.00%	11.10%	5.20%
Ambuja Cements	25.10%	10.20%	8.40%
Shree Cement	5.40%	15.10%	2.50%
UltraTech Cement	8.60%	10.60%	5.20%

 

 

End

 

Edited by Ashish Shirke

 

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