ACC’s operating margins feel the stress as cost pressures grow
While volume growth was good, what ACC really needs is higher cement prices.
ACC Ltd’s cement sales volume indicates demand is robust but profitability is a source of concern.
Sales in volume terms grew by 10% from a year ago to 6.55 million tonnes in the September quarter, aided by improving demand. Stand-alone net profit increased around 16% to₹205.55 crore but missed Bloomberg’s consensus estimates of₹262.3 crore. ACC’s fiscal year ends in December.
Revenue at₹3,433.2 crore grew by 10.2% over a year ago and exceeded analysts’ expectations of₹3,389.7 crore. Analysts said that its realizations improved slightly during the quarter. But input cost inflation marred performance, leading to lower profitability.
ACC’s material cost, and power and fuel costs remained high. According to the company’s management, while costs of input materials such as coal, petroleum coke, diesel and slag continued to increase, they were partly offset by improvements in operating efficiencies and productivity. Its Ebitda (earnings before interest, tax, depreciation and amortization) margin declined by 40 basis points to 11.1%. A basis point is 0.01%.
The sector’s logistic and transportation cost is expected to reduce due to the revised axle load norms. Investors will be closely watching the trend here.
While volume growth was good, what ACC really needs is higher cement prices. That appears tough and was not evident in October either. All-India cement prices fell in October by ₹2/bag on a month-on-month basis to ₹326/bag, showed a recent market assessment by brokerage house Kotak Institutional Equities. One cement bag weighs 50kg. Although, the regional break-up shows that cement prices in central and western India did relatively better. Since ACC has a national presence, it could benefit from this.
However, unless cement prices improve across India or cost pressures abate, the stress on profitability is here to stay.
ACC’s stock slipped to a 52-week low of₹1,255 in July this year and since then it has rallied around 24%. Since January, it is down by nearly 12%. Although this is better than the benchmark Nifty Commodities index, which has fallen 16% during the same period, given cost pressures and weak prices, investors in cement stocks should tread with caution.
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