ACC: Muted December quarter, but pick-up in volumes, realizations key
Shares of cement giant ACC Ltd were under pressure on Friday, falling nearly 2% intraday and closing the session in red. This nervousness had to do with the company’s Q4FY17 earnings.
Cement volumes declined 9.2% year-on-year (y-o-y) in Q4FY17 to 5.45 million tonnes (mt) from 6 mt. This slip was primarily due to poor demand post demonetization. That volume growth would not be robust was already known, but weak realizations came as a disappointment.
Consolidated net profit declined 45% y-o-y to Rs56.3 crore on the back of lower realizations and a fall in sales volumes. But the dent in the bottom line was sharper due to an exceptional item—provisions made for advances and other current assets relating to a subsidiary company to the tune of Rs38.59 crore. Consolidated net sales fell 6.13% to Rs2,671.61 crore y-o-y. Thus, both net profit and net sales missed the Bloomberg estimate of Rs98.22 crore and Rs2,720.3 crore, respectively.
Consolidated earnings before interest, taxes, depreciation and amortization (Ebitda) was down 8.57% at Rs256 crore y-o-y and operating margin fell 26 basis points to 9.58%, y-o-y. One basis point is one-hundredth of a percentage point.
The company follows a January-December financial year.
Lower volume growth and realizations led to a fall in consolidated revenue, which stood at Rs2,671.61 crore in the quarter. According to some analysts, the drop in volume is in line with expectations. Peer Ultratech Cement Ltd’s sales volume fell 2% y-o-y in the December-ended quarter. ACC’s ready mixed concrete business saw an overall growth of about 14% in sales volume during the past quarter.
As far as the overall demand outlook is concerned, the company seems to be optimistic. The slowdown witnessed after demonetization is easing and the economy is likely to show solid growth in the months to come, it said.
On the supply side, updating about capacity additions, ACC said the 1.35mt cement grinding unit at Sindri in Jharkhand was commissioned in October-end and the company has completed the new integrated project with its clinkering line of 2.79 mt and grinding unit of 1.10 mt in Jamul. With these two new units, ACC, a pan-India player, expects its presence in the eastern region to get a boost.
On a y-o-y basis, fuel and power costs were lower, helped by optimization of fuel mix and other input materials. However, going ahead, as petroleum coke prices continue to harden and freight costs stay high, the price movement of these components will be closely watched.
On the valuations front, ACC is trading at a one-year forward price-earnings multiple of 21.72 times, lower than UltraTech’s 33.43 times. Apart from the cost factor, a revival in cement demand and recovery in realizations will be key.