ACC third quarter net profit seen up 162%

Associated Cement Cos. is expected to report 162 per cent year-on-year rise in net profit to Rs 58.4 crore for the third quarter of 2004-05 (April-March), according to the average of estimates of eight brokerages polled by Crisil MarketWire.

Net sales, however, are seen up only 3 per cent at Rs 930 crore. ACC will detail October-December earnings post-market hours Thursday.

In the year-ago period, ACC reported net sales of Rs 906 crore, while net profit was Rs 223.2 crore. Analysts' net sales expectations for the third quarter of this year range from Rs 850 crore to Rs 106 crore, while net profit expectations range from Rs 21.1 crore to Rs 88.1 crore. Sequentially, ACC's third quarter net profit is seen down nearly 79 per cent but net sales are seen up 5 per cent.

In July-September, the company reported 18 per cent rise in net sales to Rs 885 crore, while net profit rose 182 per cent to Rs 78.56 crore.

The company's cement sales in the third quarter are seen at 3.86 million tonnes, up 10 per cent from 3.5 million tonnes last year, according to analysts.

ACC's despatches during the quarter were up 13.7 per cent on year at 4.125 million tonnes.

Sundar Subramoney of Prabhudas Lilladhar Securities expects ACC to report volume growth of 12.2 per cent in October-December against flat volumes reported during first half.

Analysts expect the company's realisation per tonne to grow at least 5-7 per cent year-on-year to Rs 2,064 per tonne in the third quarter. Sequentially, however, the realisation is seen nearly 5 per cent lower.

The year-on-year rise in cement prices will be the key driver for ACC's third earnings growth, especially because of the company's sensitivity to cement prices.

According to analysts, a one-rupee-per-bag change in cement prices affects ACC's net profit by 6 per cent.

But the unprecedented drop in cement prices in the third quarter would relatively lower the profits of cement companies, especially when the quarter has seen rise in freight rates, analysts said.

"After three quarters of firmness, cement prices weakened in third quarter (of FY05). National average prices during 3QFY05 were down 4.4 per cent sequentially at Rs 146 a bag. This softness in prices was in contrast to our expectation of sequential increase in cement prices," said Jinesh Gandhi, analyst at Motilal Oswal Securities.

Analysts expect EBITDA (earnings before income, tax, depreciation and amortisation) margins to rise to 14-15 per cent in the third quarter from nearly 9 per cent in the same quarter last year.

Most of the analysts have retained their 'market performer' rating on ACC.

According to Sharad Jain of Cholamandalam Securities, ACC shares are quoting at a valuation 18.5 times its FY05 expected earnings.

"This looks fairly valued and hence, we maintain our market performer on the stock," he said. He also expects the interest cost to come down by 12.5 per cent.