Business Tantra

Shares of cement manufacturers traded weak, down 3 per cent in Thursday’s intra-day trade on the BSE on concerns of earnings downgrade due to rising energy cost.

Ambuja Cements, UltraTech Cement, JK Cement, Dalmia Bharat and ACC were down in the range of 2 per cent to 3 per cent. In comparison, the S&P BSE Sensex was up 0.24 per cent at 55,603 at 10:40 am.

In the past one month, the stock price of Dalima Bharat, JK Cement, Ambuja Cements, JK Lakshmi Cement, Birla Corporation, UltraTech Cement, Prism Johnson and HeidelbergCement India declined between 15 per cent and 25 per cent, after the companies reported weak operational performance in December quarter unfavorably impacted by very steep escalation in fuel prices coupled with subdued demand in multiple regions.

Among individual stocks, Ambuja Cements was down 3 per cent at Rs 294.75, having dropped as much as 22 per cent in past one month. The stock traded close to its 52-week low of Rs 273.95 touched on March 19, 2021. In December quarter (Q4) the company’s margin contracted by 651 bps quarter-on-quarter (QoQ), 660 bps year-on-year (YoY) to 15.2 per cent on account of higher fuel prices and flat realisations. Earnings before interest tax and depreciation and amortization (EBITDA) declined 26 per cent YoY at Rs 568 crore impacted by unprecedented increases of fuel prices. Revenues were up 6.3 per cent YoY to Rs 3,735 crore.

There has been a substantial increase (up 75 per cent/52 per cent) in South African/ Australian coal prices in the last one month (40-50 per cent increase in two weeks).

At present, imported coal prices are significantly higher than their peak in October 2021 (e.g. South African coal price stood ~USD300/t v/s its peak of USD248/t). Petcoke prices too have started to rise. There will be a further increase in domestic/imported petcoke prices as cement companies would want to maximize the usage of petcoke.

Apart from higher coal/petcoke prices, the recent increase in crude prices/ocean freight rates may further put pressure on operating cost for the industry. Higher crude prices may lead to a rise in diesel price, which will lead to higher freight costs (a 5 per cent change in diesel price to impact opex by around Rs 20/t), analyst at Motilal Oswal Financial Services said in cement sector update. In the current scenario, the brokerage firm expects companies with stronger balance sheets to perform better than leveraged companies.

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