Ambuja’s Q2 operating performance was dented by lower-than-expected cement realisations. Cement realisation/tonne fell 6% q-o-q (versus our forecast at -3% q-o-q). In Q2, Ambuja’s cement volumes were up ~1.5% y-o-y, which is certainly better when compared to other larger peers, eg, UltraTech and ACC whose volumes (organic) either declined or remained flat y-o-y. We think Ambuja seemed to have chased volumes thereby sacrificing on realisations.
This is contrary to past trends, given Holcim group companies’ have historically been more focused on the realisations.
Pricing in the northern/western regions have been quite weak, led by the price war between players to gain market share. Led by weak realisations, core ebitda fell short of our/consensus estimates by 4%/8%. We cut our FY15/16f ebitda by 22%/11% as we build in lower realisations for Ambuja. In the sector, we remain selective and like buy rated UltraTech and Shree Cement.
Within our Neutral rating stocks, we continue to prefer Ambuja over ACC due its favourable regional capacity mix, efficient operations and for strategic reasons (higher promoter stake in ACEM, higher likelihood of Lafarge India’s (unlisted) assets being transferred to Ambuja).