Cement manufacturer ACC Ltd has reported weak results for the year till December.
Operating profit on a per-tonne basis fell by about 10% despite the fact that the loss-making ready-mix concrete business was hived off as a subsidiary company at the beginning of the year. Realizations grew marginally on a year-on-year (y-o-y) basis, but costs—especially those of power and fuel—rose sharply, leading to pressure on profit margin.
The company’s performance in the latest December quarter is difficult to judge because of what seem to be year-end adjustments in its accounts. Other expenditure, for instance, dropped by nearly one-fifth on a quarter-on-quarter (q-o-q) basis, although revenues grew by 5% sequentially. Still, the quarterly results suggest that things haven’t gotten better—realizations have declined q-o-q and margin pressures have remained.
Earlier this week, ACC reported a decent 12.5% y-o-y growth in despatches for January, after which its shares have risen by nearly 8%. But as pointed out in this column on Thursday, the days of double-digit growth may soon be over.
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Currently, sales are being driven by a relatively low base and demand ahead of the general election. Demand is expected to taper off considerably later, and according to one institutional broker, ACC’s despatches may be about 4-5% lower in 2009 compared with the previous year. The reason for this is the slump in the real estate and construction sectors, where there is no sign of revival. In 2010, of course, the industry will see a spate of new capacities coming on stream and this will skew the demand-supply situation further. Given the bleak outlook, ACC’s current valuation of at least nine times trailing earnings isn’t much lower than the market aggregate valuation.
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Graphics by Ahmed Raza Khan / Mint