ACC throws in volume, margin surprise
PAT surges 126%; rising volumes, cost optimisation and better product mix help beat estimates
Strong volumes, cost optimisation and favourable product mix helped ACC post a stellar performance for the quarter ended December, its fourth quarter (Q4) as the company follows a JanuaryDecember financial year. These helped ACC post a 126 per cent year-on-year (y-o-y) surge in net profit to ~2.06 billion, much ahead of the Bloomberg consensus estimate of ~1.65 billion. Thus, it is not surprising that ACC’s share price surged 6.4 per cent to ~1,692.30 on Thursday. And there are more triggers for the company, which could take its share price even higher, say analysts.
Benefits of capacity expansion
Sales volumes grew by a strong 27 per cent y-o-y to 6.92 million tonnes (mt). This was partly because of a low base as the year-ago quarter had seen volumes fall by an estimated 9 per cent, and second, due to the ramp-up of recently commissioned capacities at its Jamul and Sindri plants. Even then, it was ahead of most analysts’ estimates of a growth rate of 20-23 per cent. Analysts such as those at Motilal Oswal Securities were expecting sales of 6.6 mt in the December quarter. Rising capacities in the east, where demand growth remains strong, helped ACC post strong sales volumes.
Thus, revenues at ~34.2 billion grew 30 per cent y-o-y and came well ahead of the ~28.11 billion estimated by analysts, according to the Bloomberg data.
Neeraj Akhoury, managing director and CEO, said the company registered robust revenue growth across categories and geographies, with an increased focus on premium products and a targeted approach and markets, delivering strong top line growth.
Cost optimisation boosts profitability
During the quarter, prices were soft, given that average panIndian cement prices of a 50-kg bag stood at ~288 (analysts’ estimates), lower than the ~290 in the seasonally weak September quarter and ~303 in the yearago quarter. But despite this, ACC posted a strong operational performance.
Notably, coal and logistics costs, too, have continued to rise with ACC witnessing a surge in power and fuel costs as well as freight expenses. Power and fuel costs, for instance, surged by a third to ~7.09 billion over the corresponding quarter last year, while freight expenses, too, came 37 per cent higher at ~9.42 billion. But, as ACC managed to keep overall expenses under control, its operating cost/tonne stood at ~4,410, which was broadly flat on a y-o-y basis and down by about 3 per cent sequentially.
Thus, ACC’s operating profit at ~4.43 billion came much better than the ~2.87 billion in the year-ago quarter, leading to operating profit per tonne of ~506. If the company is able to sustain this trend, it may be able to catch up with its panIndian peers such as UltraTech, which had reported per tonne operating profit of ~717 in Q4; Shree Cement, which is largely a north-based player with some presence in the east, had seen much better per tonne profitability of ~1,057.
Prospects healthy Analysts, however, are hopeful on the profitability front. With benefits accruing from capacity expansion and given the sustained cost control efforts, they believe the expected uptick in realisation in the subsequent seasonally strong quarters can help ACC improve its profitability profile further.
Binod Modi at Reliance Securities says the improved performance in December quarter is purely on account of a better demand scenario in eastern markets, cost optimisation and favourable product mix. While operating profit per tonne at ~506 still appears poor compared to other pan India cement players, he believed cost optimisation measures and likely improvement in realisations in its key markets would aid ACC to improve margins.