ACC rides on strong mkt, Q1 net up 54.5%

MUMBAI: ACC, the country’s largest cement company, on Thursday reported a 54.5% increase in first quarter net profit to Rs 363.75 crore as prices remained strong and costs fell.

Net sales realisation, which is the net revenue earned per tonne of cement sold, jumped 26% while operating margin climbed 600 basis points to 30.3%. Steady prices was more than able to offset a marginal 1% decline in cement despatches in the quarter with net sales rising 24.8% to Rs 1,674.8 crore.

The government’s decision to link excise duty on cement to its retail price (higher the price, more the excise) in February’s budget does not seem to have made much of a dent in ACC’s performance. Operating profit net of other income, rose 55% YoY to Rs 507.1 crore while earnings per share.

But the ACC shares fell sharply on Thursday on profit booking after a sharp rise in recent days. The shares fell 3.5% to Rs 788. It has fallen 28% in the past three months.

ACC’s performance, analysts said, is likely to be firm in the coming months as demand continues to be strong and prices are also likely to be stable. The government diktat notwithstanding, companies could well have the leeway to increase prices by a small amount, benefiting margins immensely.

In the past quarter, ACC was also helped by increases in captive power capacity. Instead of relying on the irregular government grid, captive power helps power-intensive industries with timely savings. Analysts estimate that ACC would have saved up to Rs 200 per tonne by commissioning captive power in some of its plants. Other costs were also lower. Interest costs fell 80% YoY to Rs 4 crore.
ACC attributed it to “improvements through product- market optimisation, higher sales of blended cement and other cost reduction measures.”

Interestingly, the results don’t show any impact of an excise duty hiked announced in the budget. The company excise duty payments during Q1 declined by 5% YoY. It’s also hard to speculate on the financial impact of the price controls measures adopted by the government. On quarter-on-quarter basis net sales realisations were up by 6.8%.

ACC’s board of directors also approved the sale and transfer of the ready mix concrete business to ACC Concrete, a new wholly-owned subsidiary which is being incorporated. This is expected to give the business the required focus, and access to resources, for implementing its growth plans.

According to the company, volume growth during the quarter was affected due project related shut-down of some its units. Going forward, it expects to post faster volume growth as the grinding augmentation project at Tikaria has gone into commercial production during the current quarter, while capacity expansion project at Lakheri commenced trial production.

Some other costs were also higher. On a per-tonne basis, outward freight cost was up by 30% and power & fuel cost increased rose by 17%. The two account for around 45% of the company’s operational expenditure. The results also included a one-time gain of Rs 20 crore from divestment of its erstwhile subsidiary Everest Industries.