Ambuja Cement Reports Strong Numbers for The June Quarter 2012.

Ambuja Cement a Holcim Group Company announced its result for the June quarter 2012. As earlier expected the company has done quite well during the quarter. The net sales of the company has grown by 18% on YoY basis to 2566.93 crore and the net profit has jumped significantly by 35% to Rs 468.2 crore.   The strong performance of the company was mainly on account of the jump in the sales volume and increase in the realization. The Dispatches during the quarter grew by 7.4% to 5.54 mn tonnes while the realization has increased by 10% on YoY to Rs 4632/ tonne.

Decent growth in the demand from the infrastructure and construction side has helped the company to report higher dispatch numbers for the quarter. The overall growth in cement demand this year YTD remains much better than 2011. This can also be known from the dispatch numbers reported by the most of the cement companies in last six months.

Delayed monsoon too helped the company to maintain the dispatch in the month of June. Generally with the onset of monsoon cement demand cyclically tends to declines however with monsoon arriving late demand remained firm.

Apart from the growth in the dispatches, higher realization and improved operation efficiency (EBITDA/Tonne improved by 15% YoY to Rs 1328/ tonne) to has helped the company to report strong operating performance during the quarter. The EBITDA of the  company improved by 23.1% on YoY basis to Rs 735 crore while the EBITDA margin improved by 140 bps on YoY to 28.3%.  

Higher realization was on the back of the firm cement prices which stood near to Rs 300 per 50 kg of Bag.  This time situation was more in the favour of the cement companies that hold them back from any price cut. Infact it increased the cement prices in the northern region by Rs 10-15 per 50 Kg Bag just before the arrival of the monsoon where cement companies generally go for a price cut due to slower construction activity.

This hike was done to set off the higher input cost of raw material (up by 19% YoY), Coal cost (up by 6.3% YoY) and higher freight charges (Up by 18% YoY) which was putting pressure on the margins. In the press release the company has stated that increase in the realization was barely sufficient to make up for the cost increase.

In conclusion we believe that company have posted strong result for the quarter mainly on the back of decent dispatches, Higher realization and improved operation efficiency. There was some pressure from the input cost side however the firm cement prices and improved operation efficiency helped the company to improve the Margins of the company.

However going forward with the arrival of monsoon we will see a decline in the demand in coming months. This is due to lesser infrastructure activity and coupled with slowing economy and sand availability issue in some parts of the northern region.  Further the increase in the Power&Fuel cost and freight charges will continue to hurt the margins as cement companies will not be able to pass on the hike due to weak demand scenario.

The situation this year is although better in terms of demand than previous year. Also with government thrust on higher infrastructure spending this year will lead to better demand for the cement companies.