BackACC up 3% as better realizations, cost controls aid September quarter earnings
The company’s management said that to mitigate the impact of rising diesel costs, it continued to focus on geographical-mix improvement, direct dispatches, network optimization, and procurement savings, which led to a 1% decline in freight cost/tonne on a year-on-year basis.
PremiumMUMBAI : Cement manufacturer ACC Ltd reported decent earnings in the September quarter. A combination of favourable factors helped ACC beat cost pressures.
Better grey cement realization and higher RMC (ready-mix concrete) and other operating income offset the impact of cost inflation to some extent. Although grey cement realizations declined sequentially, the fall was less than anticipated. “Grey cement realization declined 1.8% quarter-on-quarter to ₹5,058/tonne versus our estimate of a 3% fall, owing to a marginal shift in the regional mix from East to Central markets, in our view," analysts at Emkay Global Financial Services Ltd said in a report.
Reacting to the earnings, shares of the company rose 3% on the NSE in Wednesday's opening trade.
A sharp increase in fuel and diesel prices, and higher packing materials and maintenance costs resulted in an increase in operating cost/tonne, which rose by 5% year-on-year and 4% sequentially to ₹4,171. However, higher costs were partly offset by low lead distance and various cost efficiencies achieved through project ‘Parvat’. The company’s management said that to mitigate the impact of rising diesel costs, it continued to focus on geographical-mix improvement, direct dispatches, network optimization, and procurement savings. These measures led to a 1% decline in freight cost/tonne on a year-on-year basis.
“ACC has undertaken several cost reduction initiatives to offset input cost pressures that have helped improve its profitability. These initiatives include: ‘Project Parvat’, which resulted in cost savings of ₹110/tonne in CY20 and is sustainable; operating cost synergies from the master supply agreement with Ambuja Cement; higher share of premium products; and reduction in fixed costs," analysts at Motilal Oswal Financial Services Ltd said in a report. The brokerage house pointed out that ACC’s Ebitda/tonne grew significantly (14.2% CAGR) over CY18-20 to ₹972 in CY20 and is expected to improve to ₹1,157 in CY23. CAGR is short for compounded annual growth rate.
That said, analysts caution that full impact of cost inflation would start reflecting for ACC from calendar year 2022 onward. ACC follows the calendar year as a financial year.
Meanwhile, its volume growth was flat y-o-y to 6.7 million tonnes. The management expects the strong demand to continue going forward, led by an improvement in housing demand, government’s focus on infrastructure development, and a demand revival in industrial and commercial construction. The management further added that its capacity expansion plans in Central India are progressing well.
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