Ambuja Cement Posts Decent Earnings Despite High Input Costs
DSIJ Intelligence / 23 Apr 2012
Ambuja Cement, one of the largest cement players in India, has announced its results. The company, as expected, has reported decent earnings for the March quarter with the net sales growing by 19 per cent on a YoY basis to Rs 2,633.3 crore and the operating profit witnessing a jump of 20 per cent to Rs 744.63 crore.
Ambuja Cement, one of the largest cement players in India, has announced its results. The company, as expected, has reported decent earnings for the March quarter with the net sales growing by 19 per cent on a YoY basis to Rs 2,633.3 crore and the operating profit witnessing a jump of 20 per cent to Rs 744.63 crore. The boost in the sales and operating profit is on the back of a recent uptick seen in the demand and the increase in the cement prices during the quarter.
Cement companies during the March quarter increased the cement prices on an average by Rs 20-25 per 50 Kg bag which resulted in higher realisation. Moreover, the improvement in demand from the construction and infrastructure space in the northern and western regions of the country resulted in higher sales volume, up by 9.8 per cent on a YoY basis to 6.05 million tonnes.
| Sales Volume & Realisation for March Quarter 2012 | |||||
|---|---|---|---|---|---|
| Particulars | Q1CY12 | Q1CY11 | YoY | Q4CY11 | QoQ |
| Net sales (Cement) | 2633 | 2213 | 19.0 | 2336 | 12.7 |
| Dispatches | 6.05 | 5.51 | 9.8 | 5.54 | 9.2 |
| Realization/ tonne | 4352 | 4016 | 8.4 | 4217 | 3.2 |
On the margin front, despite an increase in the costs of raw material (up by 28.6 per cent YoY), energy (up by 30 per cent YoY) and freight charges (up by 18 per cent YoY), the company has been able to improve its EBITDA margin by 40 bps on a YoY basis to 28.3 per cent. This was mainly on account of the hike in the cement prices during the quarter.
| Financials For Q1CY13 (Rs In Crore) | |||||
|---|---|---|---|---|---|
| Particulars | Q1CY12 | Q1CY11 | YoY | Q4CY11 | QoQ |
| Net Sales | 2,633.3 | 2,212.5 | 19.0 | 2,336.3 | 12.7 |
| Raw Material | 186.0 | 144.6 | 28.6 | 152.5 | 22.0 |
| Power & Fuel | 626.9 | 481.6 | 30.2 | 471.4 | 33.0 |
| Freight Charges | 601.7 | 508.6 | 18.3 | 507.4 | 18.6 |
| Operating Profit | 744.3 | 617.0 | 20.6 | 428.2 | 73.8 |
| EBITDA Margin | 28.3 | 27.9 | 0.4 | 18.3 | 9.9 |
| Depreciation | 120.9 | 106.1 | 13.9 | 123.8 | -2.4 |
| Exceptional Item | 279.1 | 0.0 |
| 24.3 |
|
| Net Profit | 312.2 | 407.5 | -23.4 | 302.4 | 3.2 |
| Net Profit Margin | 11.9 | 18.4 | -6.6 | 12.9 | -1.1 |
| Adjusted To Exceptional Item | 507.0 | 407.5 | 24.4 | 459.4 | 10.4 |
| Adjusted NPM | 19.3 | 18.4 | 0.8 | 19.7 | -0.4 |
However, due to change in the depreciation accounting method (exceptional item of Rs 279 crore), the company witnessed a decline in net profit by 23 per cent on a YoY basis to Rs 312.2 crore. ACC and Ambuja Cement changed its depreciation accounting methods during the quarter which resulted into higher depreciation charges. The change is from the ‘straight line’ to the ‘written down value’ method on fixed assets pertaining to its captive power plants. The company has said that the change in the depreciation method will result in a more appropriate presentation and will give a systematic basis of depreciation charge, representative of the time pattern in which the economic benefits flow to the company.
The company has recognised an additional depreciation charge of Rs 289 crore, (including Rs 279 crore related to earlier years disclosed as an exceptional item). Hence, the profit after tax stood at Rs 312 crore, lower by 23 per cent on a YoY basis. Had the company used the earlier method of depreciation, the net profit for the quarter would have been higher by Rs 195 crore to Rs 507 crore.
The management in a press release said that the quarter has seen a revival in the infrastructure and construction activities and therefore the cement demand over the last few months has been robust. And in the coming quarter this continuity in demand would be the key to maintain the growth momentum. However, the higher energy (coal) cost and rail freight increase by 20 per cent would keep the margins under pressure despite the hike in the cement prices.
We believe that the company has posted decent March quarter numbers, particularly on the topline and operating side despite the higher cost pressure of raw materials and freight cost. However, the higher exceptional loss due to a change in the depreciation method and the high interest cost has dented the bottomline of the company. Fortunately, the depreciation (exception) cost was one time and would not arise in the coming quarters.
Going forward we expect the company to post decent topline in Q2CY12 mainly on account of the pick-up in demand from the infrastructure and construction activity, although this would slow down during the monsoon. Also, the high raw material cost of coal and fly ash along with high rail freight will dent the bottomline performance of the cement companies as both these constitute a major portion of the overall cost of sales.
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