ACC delivers a decent performance amid demand and liquidity challenges

The operating performance should see some benefits from decling raw material costs, however demand recovery holds key for significant upside

ACC's better-than-expected September quarter performance is bound to bring cheer, especially in a challenging environment. The demand has remained subdued during the monsoon-impacted seasonally weak quarter. While the monsoon season extended till September, the festival season also kickstarted soon after. The slowdown in real estate and construction activities is adding to ACC woes and a liquidity crunch too is looked as a dampener. In this backdrop, a small two per cent year-on-year dip in volumes to 6.44 Million Tonne (MT) remains a fairly decent performance. Kunal Shah at Yes securities said that he anticipated about 3.8 per cent de-growth.

The realisations, though, continue to decline due to tepid demand. However, a steep price hike of Rs 50-70 in 50-kg bags introduced by the industry in March has meant that on a year-on-year level, the realisations still remain better. While average prices per 50 Kg bag during the quarter, at Rs 354, declined from Rs 367 in the previous quarter, they were still way ahead of Rs 331 in the year-ago quarter.

Not surprisingly, ACC net sales at Rs 3,464 crore could still grow three per cent year-on-year. On the operating front, the EBITDA/tonne of Rs 829 was higher than Shah's estimates of Rs 799 and was primarily driven by healthy improvement in net realization/tonne (up 4 per cent year-on-year). The total cost of production remained flat on a year-on-year basis. Operating profit came in at Rs 557.1 crore (up 26 per cent year-on-year) and profits at Rs 303 crore could grow 45 per cent year-on-year.

The performance should lift street sentiments towards the stock, which rebounded 3.3 per cent from recent lows and gained 2.06 per cent on Tuesday.

The prices of raw material such as coking coal and pet coke are on the decline. The quarter saw a 13 per cent year-on-year and 10.5 per cent sequential decline in pet coke prices. The benefits should be seen in the subsequent quarter. Nevertheless, demand recovery and price improvement remain key to significant upside for cement stocks.

On expansion, ACC said it is executing projects that will add new capacity in the markets of Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand and West Bengal.