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Cement cos rolling in cash as rural demand spikes; hit new 52-week highs

The second quarter growth of cement companies indicates that construction activities are rampant across rural and smaller towns

twitter-logoNevin John | October 22, 2020 | Updated 22:42 IST
Cement cos rolling in cash as rural demand spikes; hit new 52-week highs
The cement demand has peaked even during the seasonally weak June-September period

If anybody thought the people in rural India were sitting idle during the lockdown, they got it wrong. The second quarter growth of cement companies indicates that construction activities are rampant across rural and smaller towns. According to the feedback from northern and western states, the daily wagers, who returned home during the lockdown, and the agrarian community are busy in either construction or renovation of their homes.

For instance, the people, who returned from Gulf countries, are using this opportunity to build their dream homes in Kerala. "The massive construction drive has led to shortage of construction workers and materials," say the people from the state.

Kumar Mangalam Birla, chairman, Aditya Birla Group recently said that the cement business has already bounced back to pre-COVID levels. The cement demand has peaked even during the seasonally weak June-September period. The cement production saw a massive dip of 86 per cent in April post the announcement of the nationwide lockdown. However, it bounced back in a V-shaped recovery soon after.

Aditya Birla Group company UltraTech Cement has recorded 113 per cent rise in the consolidated net profit to Rs 1,235 crore in the September quarter. The consolidated revenue grew by 7.7 per cent year-on-year to Rs 10,354 crore with volume growth at 18 per cent for September quarter.

The company cited operational efficiencies and strong pan-India distribution network as the reasons for its magical performance. "UltraTech reported robust operating margins driven by both revenue growth and tight cost management," the company said in its BSE filing. The consolidated earnings before interest, tax, depreciation and amortisation (EBITDA) surged 40.4 per cent to Rs 2,695 crore and margin expanded 6 per cent to 26 per cent.

ACC Ltd has reported a 19.8 per cent year-on-year growth in consolidated profit after tax at Rs 364 crore during September quarter. Sridhar Balakrishnan, managing director, ACC said the Indian economy is witnessing early signs of recovery and it has reflected in the company's results where the volumes and sales have bounced back to previous year levels. The EBITDA grew by 20 per cent to Rs 511 crore. The cement maker's focus on premium products has enabled the net sales growth of 4 per cent, the company said in a statement. According to Balakrishnan, the efficiency and cost reduction plans have helped in expanding the margins.

Ambuja Cement is also expected to come up with around 5 per cent rise in revenue and 40 per cent spike in operating profit, analysts said.

Despite the fillip in rural construction, the government spending on infrastructure has triggered the spurt in demand. The government plans to invest Rs 111 lakh crore in infrastructure development by FY25.

The share price of ACC Ltd has risen 20 per cent in the last one month, while that of Ambuja has increased 22 per cent. UltraTech share price jumped over 19 per cent. The stock market analysts see more upside in the share prices of cement makers. 

Also read: World will need COVID-19 vaccines for 20 years: Adar Poonawalla

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