ACC: Healthy volume growth, lower overhead expenses save the day
ACC’s cement volumes in the March quarter grew 8% to 7.11 million tonnes, thanks to better demand in one of its key markets of eastern India
ACC Ltd’s cement volumes in the March quarter grew 8% year-on-year (y-o-y) to 7.11 million tonnes (mt), thanks to better demand in one of its key markets of eastern India and stabilization of its newly commissioned units at Jamul (Chhattisgarh) and Sindri (Jharkhand).
The company follows January-December as its financial year.
Since the demand environment across the country is slowly improving, the Street was anticipating a healthy volume growth.
Higher petroleum coke price, increased import duty on fuel and lower availability of linkage coal kept power and fuel cost elevated on a year-on-year basis. Freight costs increased too.
But better-than-expected realisations and lower overhead expenses offset the impact of sustained input cost pressure. Consequently, ACC Ltd exceeded analysts’ expectations on both revenue and net profit fronts.
Apart from the earnings beat, clarity on royalty payment to fellow subsidiary Holcim Technology Ltd also drove the ACC shares sharply up on Thursday.
Investors were concerned over a possible increase in royalty charges, but ACC Ltd’s management has recommended renewal of its technology and know-how agreement (i.e royalty), maintaining it at 1% of its net sales. The proposal is subject to shareholders’ approval at the ensuing annual general meeting.
The ACC Ltd stock surged nearly 3% intraday on the BSE.
Despite the positives mentioned above, domestic brokerage houses Kotak Institutional Equities and Antique Stock Broking Ltd have not only reduced the target price on the stock, but also cut their earnings estimates for rest of the year.
Though the day is saved for now, the road ahead won’t be smooth.
The remainder of the year will be challenging given increased operating costs and modest rise in cement prices across the country despite this being the peak construction season. And that would have an adverse impact on the company’s realisations. Some analysts also caution of constraint in capacity, which the company could witness over the next two years.
Meanwhile, the company’s management also said that it had limited the period of the master supply agreement (MSA) with Ambuja Cements Ltd for three years commencing from the date of its execution.
Further, both companies will have a right to terminate the MSA any time during the three year term by providing three months’ prior notice.
Though ACC Ltd’s management estimates around 5% profit before tax benefit from the potential synergies to be extracted from its MSA with Ambuja Cements, the former’s high cost structure and lower growth outlook restricts any steep upside in the stock, analysts said.
Editor's Picks »
- India to put former top climate change official Rajendra Pachauri on trial for sexual harassment
- Rahul Gandhi hits out at KCR, claims Telangana reeling under debt
- Deve Gowda-Siddaramaiah display rare bonhomie ahead of Karnataka by-polls
- Govt allocates Rs 144 crore to AYUSH ministry for alternative medicines
- Esperanto, A language whose time never came
- Policy rethink and higher volumes to aid container shippers
- DCB Bank delivers a strong Q2 but pressure on margins foreseen
- Havells India: Rising costs give a jolt to profitability in September quarter
- All’s well at Mindtree, except for high client concentration risk
- India’s rising steel demand is making companies starry-eyed