ACC's net profit falls by more than 12% in December 2012 quarter

MUMBAI: ACC, India's second largest cement maker, reported weak numbers in its last quarter results. The net profits of the company fell by more than 12% as the costs increased and demand remained subdued. Some important things to watch out for in the results are:

Higher cost of raw material: Prices of gypsum, slag and fly ash have gone up in the last quarter. The company also paid higher royalties for extracting limestone from the mines. As a result of these cost escalations, the cost of raw materials went up by nearly 45% thereby hurting the operating margins.

High freight costs: Railways increased the freight costs by 20% in September 2012. The cost of diesel was also hiked by 10% which increased the cost of transportation from road. As a result of the two hikes, transportation costs increased by 12%.

Lower power and fuel costs: The softening of international coal prices brought some relief to the company. The company sources nearly 20% of its coal requirements from the market. Despite the lower prices of coal, the benefit in rupee terms was relatively lower due to depreciating rupee in the last quarter.

Subdued demand: The overall volumes were down slightly by 1.5% as the demand remained weak due to lower construction activities. However, the main problem for the company has been its high presence in southern India.

ACC has 30% of its presence in south India where the demand has been low due to political reasons and oversupply situation. This continues to remain the biggest area of concern as the demand is yet to revive in this region.

The company has initiated the expansion process in Jamul and hopes to commission the same by 2015. Also, investment in improving the logistical infrastructure will make the company more cost efficient and lead to improvement in margins.