Will ACC’s surprise improvement in realizations sustain?
ACC Ltd’s September quarter results were ahead of analysts’ estimates both on revenue and profit fronts. Consolidated net profit more than doubled on a year-on-year basis to Rs182 crore, courtesy strong sales volume growth and higher realizations. Consolidated net sales jumped 25.4% year-on-year to Rs3,054 crore. A Bloomberg analysts’ poll had estimated profit and sales at Rs164 crore and Rs2,891 crore, respectively.
Volumes rose 17.6% to 5.96 million tonnes last quarter. As has been the case in the previous two quarters, the growth in volumes was aided by capacity stabilization of the Jamul plant in Chhattisgarh and the Sindri plant in Jharkhand. Nearly 30% of the company’s sales are contributed by the eastern region, according to analysts.
Realizations got a boost from the sale of premium products— ACC Suraksha and ACC High Performance Cement— launched earlier in the year. Sale of premium products increased 18% year-on-year in the September quarter, said the company. “ACC’s realization per tonne stood at Rs5,125 in the September quarter, exceeding our estimates,” said Rohit Natarajan, analyst at IDBI Capital Markets and Securities Ltd.
The better-than-expected realizations offset cost pressures emerging from a spike in power, fuel and freight costs. Higher usage of imported and auctioned coal, caused by limited availability of the linkage commodity, adversely impacted fuel cost. Also, prices of imported petroleum coke—a key input for cement producers—surged nearly 40% in the past one year.
Overall, the demand for the sector remains subdued with no signs of a significant revival yet. Consequently, all-India retail cement prices are currently on a weak footing. A recent trader channel check by Kotak Institutional Equites showed that cement prices in the east declined sharply month-on-month by Rs18/bag (one bag equals 50kg) in October to Rs326/bag. All-India cement prices too fell to Rs324/bag in this month. So, it would be too much to expect realizations to sustain going ahead.
Meanwhile, the ACC stock has rallied around 35% year-to-date, outperforming the benchmark Sensex that rose 23% during the same period. The stock is trading at a one-year forward price-to-earnings multiple of 29 times, the silver lining being that this is lower than peers.
“ACC Ltd’s EBITDA/tonne at Rs557 still appears poor compared to other pan-India cement players, which may not warrant the stock to re-rate further. However, its likely merger with Ambuja Cements may help the stock to witness further upmove,” Binod Kumar Modi, an analyst at Reliance Securities Ltd, said in a note. Ebitda is short for earnings before interest, tax, depreciation and amortization, an indicator of operating profitability.