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Business News/ Markets / Mark To Market/  Low base aids ACC volumes in Q1, but covid may delay expansions
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Low base aids ACC volumes in Q1, but covid may delay expansions

It should be noted that at a time when peers Ultratech Cement Ltd and Shree Cement Ltd are rapidly expanding, ACC is facing some market share loss due to capacity constraints. In this backdrop, it is vital for its expansion plans to remain on track

ACC's operating performance was impressive and much ahead of estimates(Photo: Bloomberg)Premium
ACC's operating performance was impressive and much ahead of estimates(Photo: Bloomberg)

In the March quarter, cement sales volumes of ACC Ltd grew 21% on a year-on-year (y-o-y) basis to 8 million tonnes. This is marginally ahead of the 20% y-o-y growth that analysts were anticipating.

On a sequential basis, volumes grew 4%. The growth was largely aided by a low base of last year. Also, ACC’s recently commissioned 1.4 million tonnes per annum (mtpa) Sindri grinding unit in Jharkhand aided volumes to an extent. For a company that is struggling with capacity constraints, such robust growth is impressive.

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ACC’s management has stuck to its guidance of commissioning the remaining 4.8mtpa grinding unit and 2.7mtpa clinker plant in central India in Q2CY22. ACC follows the calendar year as its financial year. However, analysts cautioned of some delay given the restrictions put in place by the government against the backdrop of rising covid cases.

Analysts at Kotak Institutional Equities see a risk of three to six months delay and expect the commissioning at the end of calendar year 2022.

Foreign research house CLSA was of the view that with capacity utilization at 90%, ACC is likely to grow slower than the industry till its Ametha unit in Madhya Pradesh is ramped up. “We believe its two-year volume CAGR of 3% was lower than the industry (+7%). In the current cycle of strong demand growth, the outlook of companies with strong volume growth are better placed," it said in a report. CAGR is short for compounded annual growth rate. CLSA cautions that ACC will struggle to maintain market share.

Another highlight of ACC’s March quarter earnings was its operating performance. Ebitda at 860 crore was the highest ever in a quarter, and 20% above consensus estimates. Ebitda is short for earnings before interest, tax, depreciation and amortization.

The beat was driven by lower variable costs and better-than-expected realizations due to a higher share of premium products. Operating margins for the quarter stood at 20.4%, a y-o-y increase of more than 300 basis points. One basis point is one-hundredth of a percentage point.

That said, the increase in prices of key input materials, such as petroleum coke, coal, power and fuel and freight costs, could weigh on margins, going ahead. To be sure, recent channel checks by various brokerages show that cement prices across India increased by about 15 for a 50kg bag in April. So, that may help contain margin compression to some extent.

Meanwhile, Bloomberg data showed that shares of ACC were trading at a one-year forward EV/Ebitda of around 8 times, a steep discount to pan-India focused peers, trading at multiples of 18-20 times. EV is short for enterprise value.

Analysts said despite the earnings beat, ACC’s valuation gap with peers is unlikely to significantly narrow until new capacity is commissioned.

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Published: 20 Apr 2021, 09:58 AM IST
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