Investors attached little importance to ACC Ltd’s strong operating performance in the June quarter. The stock gave up its morning gains and closed slightly lower on Tuesday, even after the company reported a robust 36.5% and 79% rise in operating profit and net profit, respectively.

The disappointment was on account of sluggish sales volumes, which dropped 1.3% from a year ago. Revenue fell at an even faster pace of 3% on low realizations.

Tracking the weak prices in some parts of the country, analysts were expecting cement firms to report subdued realizations. The impact on revenue was estimated to be overcome by better volumes—as had happened with UltraTech Cement Ltd which reported a 6% rise in volumes, leading to a 4% growth in revenues. That did not play out as expected at ACC, leading to a revenue miss.

ACC began commercial production at a clinker unit this month. Further, it is planning to commission two new grinding units in the current quarter. Clinker and grinding are different stages of cement production. Once commissioned, the facilities will strengthen ACC’s product portfolio and aid profitability and volumes.

But the full benefits of the new capacities will reflect in ACC numbers from the next fiscal year. In the meantime, the company will have to do a lot more to keep investors’ faith in the stock, which at 25 times estimated earnings for the next fiscal year is not cheap.

The key is higher sales. Unfortunately, the June quarter results brought analyst concerns about sales volumes to the fore. ACC’s volumes fell when most cement companies are expected to report growth in the June quarter. “Lower than industry average volume growth poses a question mark on ACC’s ability to ramp up in an intensively competitive cement market. Improvement in margin and EBITDA (earnings before interest, taxes, depreciation and amortization) per tonne during the quarter is an industry wide phenomenon," Dolat Capital Market Pvt. Ltd said in a note.

Volumes in the current quarter are expected to be subdued due to rains and a slowdown in construction. While they are estimated to recover from the next quarter, analysts are less optimistic about ACC. According to an analyst who did not want to be identified, ACC lagged its peers UltraTech Cement and Shree Cement Ltd in capacity additions and this is undermining its market share.

Adding to the concerns is a rise in the price of petcoke, used as fuel by cement companies. The sharp drop in these prices helped cement firms reduce costs and improve profitability. But as IDBI Capital Markets and Securities Ltd and HDFC Securities Ltd point out, the rise in petcoke prices can erode cost benefits, raising questions about the sustainability of current profitability.