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Ambuja Cem: Volumes surge, but lower prices impact margins - Views on News from Equitymaster
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  • Apr 30, 2016 - Ambuja Cem: Volumes surge, but lower prices impact margins

Ambuja Cem: Volumes surge, but lower prices impact margins
Apr 30, 2016 | Updated on May 16, 2016

Ambuja Cements has announced its results for the first quarter of the calendar year 2016. During the quarter ended March 2016, while the company's sales growth was flat, net profit decreased by 4.4% YoY. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales during the quarter reported flat YoY growth.
  • Operating profits decreased by 10.2% YoY; operating margins contracted from 19.4% in 1QCY15 to 17.5% in 1QCY16.
  • Other income increased by 21.7% YoY.
  • At the bottomline level, net profit declined by 4.4% YoY. Net profit margin contracted from 13.1% in 1QCY15 to 12.6% in 1QCY16.

    Standalone financial performance snapshot
    (Rs m) 1QCY15 1QCY16 Change
    Net sales 24,246 24,183 -0.3%
    Expenditure 19,531 19,948 2.1%
    Operating profit (EBITDA) 4,715 4,235 -10.2%
    EBITDA margin 19.4% 17.5%
    Other income 1336 1,626 21.7%
    Depreciation 1,578 1,477 -6.4%
    Finance costs 214 182 -15.0%
    Profit before tax & exceptional items 4,259 4,202 -1.3%
    Exceptional gain/ (loss) 0 0
    Profit before tax 4,259 4,202 -1.3%
    Tax 1,082 1,164 7.6%
    Effective tax rate 25.4% 27.7%
    Profit after tax 3,177 3,038 -4.4%
    PAT margin 13.1% 12.6%
    No of shares (m) 1,551.9
    Diluted EPS (Rs)* 5.1
    P/E (times) 43.2

    *trailing twelve month earnings

  • What has driven performance in 1QCY16?

    • On a standalone basis, Ambuja Cements' net sales registered flat YoY growth during the quarter ended March 2016. The lacklustre topline performance was on account of decline in cement realisations. Sales volume during the quarter reported a sharp recovery, growing by 9.5% YoY from 5.35 million tonnes in 1QCY15 to 5.86 million tonnes in 1QCY16.
    • On the cost front, power and fuel cost was lower due to low fuel prices and increased usage of pet coke and alternate fuel. Pet coke consumption in the kiln increased sharply from 40% in 1QCY15 to 60% in 1QCY16. Overall, increase in certain costs as well as the drop in cement realisations resulted in operating margin compression of about 190 basis points from 19.4% in 1QCY15 to 17.5% in 1QCY16. The EBITDA per tonne declined by 18% YoY from Rs 881 in 1QCY15 to Rs 723 in 1QCY16.

      Operating cost break-up
      (Rs m) 1QCY15 1QCY16 Change
      Raw materials consumed 2,072 2,207
      Purchase of stock-in-trade 42 0
      Change in inventory 10 -668
      Total raw materials cost 2,123 1,539 -27.5%
      % of Net sales 8.8% 6.4%
      Employee expenses 1,480 1,497 1.1%
      % of Net sales 6.1% 6.2%
      Power & fuel expenses 5,368 5,118 -4.7%
      % of Net sales 22.1% 21.2%
      Freight & forwarding expenses 6,207 6,967 12.2%
      % of Net sales 25.6% 28.8%
      Other expenses 4,352 4,827 10.9%
      % of Net sales 18.0% 20.0%
      Total operating expenditure 19,531 19,948 2.1%
      % of Net sales 80.6% 82.5%
    • While the operating performance was dull, higher other income and lower non-operating expenses helped curb the decline in the bottomline. Net profit dropped by 4.4% YoY during the quarter. Net profit margin declined from 13.1% in 1QCY15 to 12.6% in 1QCY16.
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