For those who track ACC's results, the recent performance of the company came as a pleasant surprise. The volume increase has come due to long pending expansion of Jamul plant in Chhattisgarh. The numbers, particularly cement realisations, were in line with the estimates.
A CC Limited's second quarter operating numbers were in line, except for the 2 per cent negative impact on blended consolidated realisations. It has continued to deliver on volume growth and cost efficiencies. The company's expansion of Jamul plant in Chhattisgarh has helped to deliver on volume growth, but optimising the volume growth even further will be a key challenge.
For CY17 year to date, ACC's volume growth is approximately 7 per cent, with an EBITDA/tonne of Rs 629, which is not very exciting, juxtaposed with the long-term potential of peers such as UltraTech. According to CLSA (a brokerage and investment firm), ACC's medium- to long-term potential needs more clarity on incremental efficiencies, which depends on how Ambuja integrates ACC's operations within itself.
Outlook and valuation
ACC has all the potential to deliver a re-rating if it doesn't disappoint in terms of its operating matrix over the next three to four quarters. Efficiencies, driven by its consolidation or eventual merger with Ambuja Cements Ltd, will also be a key parameter to its re-rating.
Meanwhile, Ambuja posted extremely robust numbers. The second quarter performance was much beyond expectations for many industry analysts. Ambuja Cements Ltd has reported extremely robust set of second quarter numbers supported by better prices. For price improvement, the Northern region contributed the highest, followed by the Western and Eastern regions. Results beats consensus by 13 per cent and analysts estimate of 14 per cent EBITDA.
According to analysts, final estimates for Ambuja were more conservative. The numbers are broadly in-line with the preliminary estimates published in April 2017. Despite the volume miss (volume growth of 4 per cent as against expectations of 5 per cent), Ambuja has been able to deliver on operating numbers driven by 11 per cent quarter-on-quarter price jump (improvements for other cement majors - 6 per cent for UltraTech and 5 per cent for ACC). Clearly Ambuja leads the large cap pack in terms of realisation jump. However on the cost front, it is exactly in-line what analysts expected. EBITDA per tonne at Rs 1,010 beats estimate of Rs 872 by 16 per cent (7 per cent to preliminary estimate of Rs 941 as estimated in April 2017).
Outlook and valuation
Overall a very robust set numbers and best improvement amongst all cement majors in first quarter. Analysts reiterate BUY with price target of Rs 290.