News Analysis

ACC beats street estimates

Muthukumar K BL Research Bureau | Updated on January 15, 2018 Published on April 24, 2017

ACC beat the market estimates by reporting 13 per cent higher sales than Bloomberg estimates. Also, the net profit was 27 per cent higher than that estimated by the market. Things seems to be turning better for the company. In the earlier two quarters, it had reported volume decline to the tune of 9-10 per cent.

Its consolidated sales were up 8 per cent y-o-y during the March quarter of 2016-17 to Rs 3,108 crore.

Business seems to have recovered from the effect of demonetisation with decent volume growth reported in the quarter. During the quarter, cement volumes were up by 4 per cent to 6.6 mt, while that of concrete were up by 7 per cent to 0.72 million cubic metres. Higher sales from its newly expanded capacity at the Jamul and Sindri plants helped prop up cement sales in the eastern region.

However, higher sales couldn’t result in better operating margins and profits – all thanks to higher power and fuel costs, logistics and other expenses. Higher petcoke prices led to an increase in power and fuel costs – which was up 10 per cent during the quarter. Petcoke is used as an alternative input to coal and its usage increased from 48 per cent to 65 per cent in the last one year. Then logistics costs were up, with about a 25 per cent increase in diesel prices – that impacted road freight costs. Moreover, other costs such as packaging (thanks to the increase in price of PP granules) increased by 5 per cent, thereby, impacting margins.

Operating margins were down from 15.3 per cent during the March quarter of 2015-16 to 13.4 per cent during the March quarter of 2016-17. Moreover, higher depreciation from the commissioning of new plants impacted overall profitability. Net profit was down by 9 per cent to Rs 211 crore.

While the company is seeing a boost in volumes, the forthcoming quarters are expected to see a slowdown in sales with slower construction activity with the onset of the monsoons. However, at a valuation of $126 (enterprise value per tonne), it is quoting below the replacement cost. It is the only one among the large players to quote below the replacement value. However, its operational efficiency is also among the lowest in the country.

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