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The December quarter earnings of cement maker ACC Ltd were unexciting. Akin to peers Ultratech Cement Ltd and Shree Cement Ltd, ACC's sales volumes fell, while input cost rose. It should be noted that Ambuja Cements Ltd is yet to announce its December quarter earnings.
ACC's sales volume was down 3% year-on-year (y-o-y) to 7.49 million tonne. The company follows a January-December accounting year. Ultratech and Shree Cement saw sales volume decline 3% y-o-y and 8.3% y-o-y in Q3FY22.
High variable cost continued to hurt, leading to contraction in ACC's operating margin to 13.1% in 4QCY21 from 14.1% in Q3CY21. Hit by a surge in coal prices, power and fuel cost on a per tonne basis rose 27% year-on-year in Q4CY21. In a positive, however, due to its master supply agreement (MSA) with Ambuja, freight cost and raw material costs declined in Q4CY21 compared to Q4CY20.
Understandably, ACC shares were muted on Thursday, trading flat on the National Stock Exchange, in reaction to the company's December quarter performance.
Nonetheless, the stock’s performance in the last one year has been impressive. ACC shares have risen 31%, outperforming Ultratech’s 17% returns in the same span. Shree Cement stock price has declined 9% in the last one year.
In the last five years, ACC shares have given lower returns than Ambuja, Ultratech and Shree. In the the last three years, ACC shares have risen by 66% compared to 110% surge in Ultratech and 80% jump in Ambuja shares.
Analysts say the company’s expansion plans are on track and its cost rationalisation measures are yielding results and driving optimism towards the stock.
“ACC’s volume improved during CY17-19 after remaining stagnant over CY11-16, which helped to arrest the market share loss seen during CY09-16. Going forward, we expect ACC to benefit from capacity expansions in Central India. Benefits from cost saving strategies (Project Parvat and MSA with Ambuja Cements) are expected to continue going forward," analysts at Motilal Oswal Financial Services Ltd said in a report on 10 February.
It should be noted that ACC’s 1.6 million tonnes per annum (mtpa) grinding capacity in Tikaria, Uttar Pradesh and an integrated plant with a clinker and grinding capacity of 2.7mtpa and 1mtpa, respectively in Ametha, Madhya Pradesh are expected to be commissioned by calendar year 2023.
Meanwhile, on the valuation front, the ACC stock is trading at a one-year forward (FY23) EV/Ebitda of 9.34 times, showed Bloomberg data. EV is short for enterprise value. Ebitda stands for earnings before interest, tax, depreciation and amortisation. Peers Ultratech and Shree Cement are trading at a higher valuation multiples of 16 times and 18 times, respectively. Analysts say, while the stock price is catching-up, bridging the valuation gap will be a gradual process for ACC.
