Murtuza Arsiwalla, analyst, Kotak Institutional Equities says cement players ACC and Ambuja reported weak operational numbers for Q3 with the sequential operation improvement in both the companies lower than the usual.
“Despite stock correction, valuations are still high,” says Arsiwalla in an interview to CNBC-TV18’s Latha Venkatesh & Sonia Shenoy. Arsiwalla also adds that the Jan-Mar quarter is traditionally the best quarter for cement companies. He sets a target price of Rs 150 and Rs 1,070 for Ambuja and ACC respectively.
Below is the verbatim transcript of Murtuza Arsiwalla’s interview on CNBC-TV18.
Sonia: How do you approach ACC and Ambuja Cements post earnings?
A: There is not much excitement in the numbers. The sequential improvement is on basis of higher volume base and the operating leverage that kicks in but the underlying still remains weak, the realisations are still down, profitability unexciting and although the stocks have corrected sharply from a valuation standpoint, they are sill rich and on benign assumptions of earnings. So, numbers bid in fair amount of improvement in profitability in the year going forward but valuation still rich at 9-10 times EV/EBITDA which is upper end of the historical range where they traded.
Latha: How are you looking at next year’s numbers?
A: On sequential basis, you would see improvements in most timeframes, given you are coming from a monsoon quarter where volumes are down, price action is limited. The sequential improvement is almost always there. In fact, it has been a tad lower because you have even seen price action being muted. You did see some earlier action in months of October and November with some price increases but that hasn’t come through in December where prices corrected sharply and so, there would ideally have been some price improvement sequentially which has not been of the order that one would have traditionally expected in terms of the current quarterly numbers.
Latha: How are you expecting realisations and demand in the first half now, before the monsoon kicks in June?
A: Going back to traditional trends you would see a volume uptick – January to March, first half of the calendar year is typically the best time for cement companies, so from hereon you would see uptick in volumes, prices.
Latha: But in year-on-year terms will it be better?
A: In year on year terms the last two years have not seen that trend come through. We do build 5 percent improvement in volume, which is much optimistic from the year gone by. If you look at Ambuja Cements’ results, the one silver lining was the volume growth number and that is something that stands out most for me. It is just a quarter; it is not something that we have seen in other companies. We have not seen it in ACC, we have not seen in UltraTech Cements but it’s the volume growth number that I would be watching a lot more closely – having had low to single digit volume growth in the last two years, you could be more optimistic for the first half of the current calendar year.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
