The ACC stock ended in the red, closing at Rs 1,420.05 on Thursday, after the company reported its September quarter results, wherein cement volumes, at 5.4 million tonnes (mt), fell 10.7 per cent sequentially and 5.1 per cent year-on-year, disappointing the Street. Although revenues and profits growth was satisfactory and generally in line with expectations, ACC, like other cement players, has been riding on better realisations that has provided the boost.
All India average cement prices during the September quarter stood at Rs 300 per bag, slightly better Rs 295 for the June quarter, which has been predominantly led by western, central and northern regions. Prices in South and East of India have remained subdued. Hyderabad had seen per bag prices dropping by as much as Rs 45 a bag in the month of September. Hence, with ACC being an all-India player having good presence in South, it’s per tonne realisations stood at Rs 4,527 a tonne or Rs 226.35 per bag (down 1.4 per cent sequentially as per analysts at Motilal Oswal Securities). However, realisations are much better compared to Rs 247 a bag seen in September 2011 quarter — ACC’s realisations were up 20 per cent year-on-year.
With slightly lower per tonne realisation on sequential basis and raw material and energy costs increasing by Rs 122 a tonne, Ebitda margins (down 568 basis points sequentially) fell to 18.8 per cent and came in below the expected 19-19.8 per cent. Moving forward, with monsoons over, cement prices have again started moving northwards. According to Ravi Soda at Elara Capital, prices have already increased by Rs 9-25 a bag, in Lucknow, Jaipur, Bhopal and Delhi in October. However, South India is still showing mixed trends. Prices in Cochin and Chennai have declined by Rs 8 and Rs 18, respectively. Nevertheless, analysts at Edelweiss expect price hikes of Rs 5-15 a bag in most of the regions. The realisations are thus likely to rise moving forward.
Nevertheless, some concerns for ACC remain on the volume growth front. Soda adds that during the month of September ACC had seen a modest growth of four per cent only due to capacity constraints. Last major capacity additions undertaken by ACC have been in the South India only. Though ACC plans increasing its current capacities from 30 mt to 34 mt (increasing four mt in high growth areas like east), reports indicate the capacity additions at the Jamul site in Chattisgarh region will be completed by CY2015.
Another concern comes from speculations that ACC will pay two per cent royalty to its parent, Holcim for access to technology, resulting in a 1.2 per cent decline in the share price on Wednesday. While no confirmation has come on the same, Rakesh Arora at Macquarie sees an impact of 9-19 per cent on earnings of ACC and Ambuja (another Holcim group company). Investors will thereby have to be watchful on this front.
Further, led by the rich valuation trading at CY13 $144 Enterprise Value (EV) per tonne and EV/EBITA of 9.2 times, Rikesh Parikh, VP-Markets Strategy and Equities at Motilal Oswal Securities maintain a Neutral view on the stock. As per Bloomberg data, 23 of 58 analysts polled have ‘buy’, 13 ‘hold’ and 22 ‘sell’ ratings on the stock.
