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High costs hit ACC Q1, oversupply concerns stay

High costs hit ACC Q1, oversupply concerns stay
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First Published: Thu, Apr 22 2010. 10 39 PM IST

Updated: Thu, Apr 22 2010. 10 39 PM IST
Cement conglomerate ACC Ltd’s results for the March 2010 quarter registered higher realizations on the back of strong demand and higher cement prices.
But, increase in operating costs led to a dip in profitability of the company.
Sale despatch figures which were announced earlier in the month had already pointed to the 2.6% drop in volumes despatched from 5.73 million tonnes to 5.58 mt on a year-on-year (y-o-y) basis. Sequentially, though, volumes grew by around 4%.
Given the strong demand in the northern and eastern markets, the company has attributed the fall in volumes to a shortage of railway wagons—a factor being cited by cement manufacturers over the last two months. A section of analysts, however, say cement companies are also keeping sales volumes muted as excess supply would dampen prices and hit profitability.
Consolidated revenues of ACC for the quarter rose by around 3.5% to Rs2240.4 crore over the year-ago period. Realizations improved 5% both on a y-o-y and sequential basis to around Rs3,678 per tonne. Yet, with operating expenses being around 2 percentage points higher than the year-ago period, the operating profit contracted by 2.3% to Rs655 crore. This was due to an increase in both employee and raw material costs. However, power and fuel costs were lower, which analysts say is due to optimum blending of cement and clinker.
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ACC’s operating profit margin during the quarter dipped to 29% from 31% in the year-ago period. This also trickled down to register a marginally lower net of Rs392.9 crore.
But looking ahead, analysts’ consensus is that as the monsoon sets in from June, there could be weakening of demand across most regions. Besides, the end of the harvest season is likely to regularize the movement of cement as constraints on wagon availability ease. This, in turn, will ensure supply of cement in the markets, which could see softening of cement prices. A report by Alchemy Share and Stock Brokers Pvt. Ltd says: “Despite assuming all India consumption growth of 12.6% y-o-y in FY11E, we expect a surplus of 5.9 million tonnes.”
Shares of ACC reacted following the announcement of results to close 1.3% lower at Rs919 on the National Stock Exchange. With the industry having to battle with imminent negatives such as rising operating costs and excess supply in the market, share prices are unlikely to appreciate in the near term.
Graphic by Ahmed Raza Khan / Mint
Write to us marktomarket@livemint.com
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First Published: Thu, Apr 22 2010. 10 39 PM IST