India’s oldest and largest cement maker ACC Ltd’s fourth quarter profits were affected by lower realizations per tonne of cement sold as well as higher expenses. Net realizations per tonne dropped on a sequential basis, from around Rs3,931 in the September quarter to around Rs3,600 in the next three months.
A section of cement analysts say that while realizations are a bit higher than the year-ago period, it is lower than expectations by around Rs90-100 per tonne. Exposure to Uttar Pradesh and southern markets, where prices were lower, could be one of the reasons.
Other expenditure, which analysts reckon to be payment towards consultancy charges as well as discounts, has increased total expenses. As a result, the operating profit, which was higher year-on-year (y-o-y) by around 6%, dropped 32% sequentially to Rs466 crore in the December quarter. Operating profit margins, too, fell sharply from 33% to 23% during the sequential periods.
Other cost increases were not too alarming. But interest costs rose 50% to around Rs18 crore from the year-ago period and about 33% from the preceding quarter, thanks to borrowing for expansion. Increase in borrowings by around Rs85 crore during 2009, along with some penalty interest cost on delay in royalty payment, led to this increase. Besides this, with the commissioning of grinding units in Karnataka and Bargarh in Orissa, depreciation charges rose from around 4% in the September quarter to 6%.
Graphic: Ahmed Raza Khan / Mint
It’s not surprising then that the net profit in the last quarter dipped both sequentially and y-o-y to Rs242 crore. ACC closed 2009 with earnings per share of Rs83, compared with Rs58 in the previous year.
ACC’s share price fell 3% on Thursday to Rs856. While some analysts believe this could be the rock bottom in terms of performance for ACC, how soon it would recover depends on the revival in cement prices. January has indicated a marginal rise in prices across the country, but capacities are expected to be commissioned through the current year, which may lead to stagnation in prices.
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