ACC - Another Disappointment from the cement pack

Company saw Ebidta of Rs 287 crore, much lower than Rs 466 crore seen in the year-ago quarter

After Ultratech’s disappointing numbers, it was ACC’s turn to disappointed with the September’13 quarter perfromance. The net profit profits at Rs 120.84 crore came less than half of what they were in September’12 and June’13 quarters. This was despite volumes at 5.54 MT coming marginally higher than 5.40 MT in the year-ago quarter. The soft cement demand leading to drop in realizations has been major cause of disappointment by cement players. The average all India cement prices have been softer by Rs 21 a bag over septemeber’12 quarter and Rs 9 a bag over June’13 quarters. This has hurt the profitability of the cement players who are seeing increasing cost pressures too in the back of higher power fuel and freight costs.

Thus ACC saw Earnings before Interest Tax depreciation and amortisation (Ebidta)of Rs 287 crore was much lower than Rs 466 crore seen in the year-ago quarter and Rs 489 crore in the June13 quarter. The margins at 11.4% decline 770 basis year-on-year and 610 bps sequentially.

Revenues at Rs 2509 crore though were 3.2% higher than year-ago quarter nevertheless September’13 quarter included Rs 162 crore contribution of Ready mix concrete segment which was not there in the year-ago quarter. Adjusted for the same revenues would have declined 3.45%.

Though ACC’s performance September’13 quarter performance was disappointing, Nevertheless the street had been anticipating the same and is looking at the future with optimism. Thus stock price after a brief correction as a kneejerk reaction post result on Wednesday rebounced back and closed 1.53% higher at Rs 1153.50.

ACC stock has seen a good 26% run-up on bourses from 52 week lows of Rs 912.05 seen on 28th August’13. This has been in the back of price hikes taken by cement players since September in anticipation of recovery in demand post monsoon. Though the optimism is in back of good monsoon pushing up rural demand and Pre election spending by the government also boosting demand from Infrastructure sector, nevertheless there are no concrete signs of the same. While we may have to wait for another month for any signs of concrete recovery in demand, many experts are not very confident of recovery coming very fast. V Srinivasan at Angel broking feels that cement demand is still likely to remain subdued for a longer time looking at the slow Economic and GDP growth. He maintains his Accumulate rating on the Stock post results.

Overall while the outlook for cement may not be very good only valuations for ACC provide some comfort. ACC is trading at replacement cost of $90 a ton compared to Ultratech’s $160 a ton. Consensus target price for the stock (analysts polled in October’13) as per Bloomberg stands at Rs 1190.