ACC's cost optimization focus saves Q1 but headwinds ahead
Due to some price hikes undertaken by ACC in its key markets during the quarter, realisations in the March quarter were marginally ahead of expectations. But, these won't be enough to absorb cost inflation, so further price increases are key for the stock
PremiumLarge-cap cement manufacturer ACC Ltd.'s weak March quarter results (Q1CY22) have set the tone for the industry's performance. ACC follows a January to December accounting year.
The March quarter is typically strong for the industry, but this time around, expectations were not too high, especially, on operating performance, given the steep input cost inflation.
But thanks to ACC's cost savings strategies, the surge in operating costs was not as bad as feared.
"We had built in ~Rs150/mt quarter-on-quarter (q-o-q) increase in operating costs, driven by higher Power & Fuel costs. However, operating costs came in flattish on q-o-q basis, which was a pleasant surprise," said analysts at Nirmal Bang Institutional Equities in a report on 20 April.
Sharing a similar view, analysts at JM Financial Institutional Securities Ltd. said that the company's strategy of keeping lower inventory paid off along with the benefits of its project Parvat. Reduction in direct expenses aided ACC's blended Ebitda/tonne, which rose sequentially in Q1CY22, said the brokerage house.
Reacting to its earnings, shares of the company rose 4.16% on the National Stock Exchange in opening deals on Wednesday.
However, analysts caution of a lagged impact of high power and fuel costs to start showing from first half of FY23.
While operating costs offered some relief, volume growth was disappointing. Cement sales volumes fell 3% year-on-year to 7.71 million tonne in Q1CY22. Analysts note that at the beginning of the quarter, volumes were impacted by subdued demand, however given the delayed capacity additions, it couldn't benefit from pick-up in demand in March.
"ACC’s higher capacity utilization rate (+90%) due to slower capacity addition than industry resulted in stagnant volumes and market/capacity share loss," analysts at Yes Securities Ltd said.
Further, investors should note that ACC's integrated unit at Ametha, Madhya Pradesh, will now be commissioned by 4QCY22 instead of 2QCY22 mentioned earlier. "The Ametha expansion has already seen considerable delays in the past and we were now building in additional volume from these capacities in our CY22 estimates, which we have now pushed to CY23," added the Nirmal Bang report.
Meanwhile, due to some price hikes in its key markets during the quarter, realisations in the March quarter were marginally ahead of expectations. However, these won't be enough to absorb cost inflation, so further price increases are key for the stock.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
