ACC profit continues to disappoint

Valuations are attractive, firm to benefit from new capacities, but improvement in profit is key

ACC’s performance for the quarter ended December was no different from previous quarters in terms of profitability. The blended Ebitda (earnings before interest, tax, depreciation, and amortisation) per tonne at Rs 466 was at levels seen in previous quarters. However, for the cement segment, Ebitda per tonne was much lower according to analysts, has not been impressive and lower than peers such as UltraTech’s (a comparable pan-India firm) Rs 900 and Shree Cement’s (a regional firm) Rs 783.

The disappointment comes even as ACC has adequate exposure to south India, where cement prices have remained buoyant (up eight per cent) compared to other regions.  

While sales volume at six million tonnes (mt) during the quarter was slightly better than analysts’ expectations, realisations fell short of estimates. Thus, revenue at Rs 2,846 crore came just close to Bloomberg consensus estimate of Rs 2,862 crore.

Ebitda at Rs 280 crore was marginally better than estimate of Rs 261 crore as power and fuel costs declined more than expected, but higher taxes saw net profit at Rs 126 crore lower than estimate of Rs 138 crore. The 10 per cent year-on-year (y-o-y) decline in net profit is because the year-ago quarter had one-off gains of Rs 323 (tax reversal of Rs 309 crore and tax interest of Rs 13.3 crore).

While near-term cement demand and realisation remain weak, analysts are hopeful of recovery in demand in a few months, helped by the infrastructure sector. The Lafarge-Holcim group companies such as ACC have also suffered due to absence of new capacities. But, with ACC’s capacity in Chhattisgarh likely to come on stream by the June quarter (addition of 2.5 mt), it could help the company gain volumes and market share in east India, where demand is growing at a good pace. In the east, though capacities have been added by Shree Cement and JK Lakshmi Cement, leading to some over-supply, analysts believe demand will remain strong.

Trading at about $100 (Rs 6,789.6) a tonne on replacement costs basis, valuations may have become attractive, but analysts say ACC will have to demonstrate a turnaround in operating efficiency and profitability for the Street to become positive on the stock.

Anticipating weak results, the stock ended at Rs 1,269, down 0.7 per cent on Wednesday. The consensus target price, according to analysts polled on Bloomberg since mid-January and before results, stands at Rs 1,383, indicating limited upside for now.