ACC disappoints as profit margins drop

Operating margin narrows 250 basis points to 12.8%

Updated7 Feb 2013, 11:01 PM IST

Cost pressures by way of higher raw material costs squeezed profit further. Photo: Ramesh Pathania/Mint **(Ramesh Pathania/Mint)**

Holcim Ltd -controlled cement firm ACC Ltd ’s December quarter performance mirrored the lacklustre investment milieu. The robust growth of 24% in net sales from a year earlier to ₹ 3,098.9 crore initially masked the actual decline in cement sales, as the quarter’s figures included the merger of two of its ready-mix concrete subsidiaries. Excluding this, the company’s stand-alone revenue was only a tad higher than the year-ago period, at ₹ 2,466 crore.

add_main_imageThe poor offtake was evident from the flat sales volume. Average realization per tonne of cement sold, too, fell marginally from a year-ago to ₹ 4,166 per tonne. This was significantly below the preceding quarter and nearly 5% below analysts’ expectation. The company’s sales volume during the quarter was subdued when compared with a year earlier.

Cost pressures by way of higher raw material costs, not to forget the increase in freight rates, squeezed profit further. A drop in fuel costs, with imported coal getting cheaper, did not arrest the fall in profitability. Operating profit was nearly 17.5% down at around ₹ 318 crore for the quarter, perhaps worsened by the merged money-losing entities. Operating margin, too, narrowed 250 basis points to 12.8% from a year ago. Compare this to the Bloomberg consensus estimates of 15.7%. One basis point is one-hundredth of a percentage point.NextMAds

Poor operating performance trickled down to post a net profit of ₹ 239 crore. Adjusting for tax write-backs in the year-ago period, the net profit was lower than a year ago, too.

ACC ’s shares, which had tracked its peers such as Ambuja Cements Ltd and UltraTech Cement Ltd for nearly a year, have started falling in the last few weeks. Further, the outlook remains bleak and analysts feel that it could be a while before ACC starts to reverse the dismal profits trajectory.

Resumption of post-winter construction helped cement prices recover in January. But with investment activity in the domestic economy yet to pick up and demand from infrastructure remaining muted, cement companies will find it challenging to frequently raise prices.

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First Published:7 Feb 2013, 11:01 PM IST

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