Firm realisations, cost control boost ACC's June quarter performance

Topics ACC | ACC Cement | Lockdown

While cement demand was significantly impacted in the peak months of April and May, some recovery was seen in June
ACC’s performance for the second quarter ending June 2020 (Q2) bore the brunt of lockdown as cement sales volumes declined. The company follows January-December accounting year. However, good realisations and cost control measures lifted the operational performance.

While cement demand was significantly impacted in the peak months of April and May, some recovery was seen in June. Yet, ACC’s sales volumes declined 34 per cent year-on-year and 27 per cent sequentially to 4.8 million tonnes (MT) during the quarter. However, this was in line with estimates of brokerages such as Emkay Global.

Cement realisations held the fort. Aided by production and pricing discipline among industry players, the all-India average cement price per 50 kg bag was up by 7.6 per cent sequentially and 2 per cent year-on-year to Rs 335- 340.

Thus, ACC’s reported cement realisation stood at Rs 5,144 per tonne according to analysts, up 9.4 per cent sequentially but marginally lower by 1.3 per cent year-on-year.

Lower prices of inputs such as coal and pet coke led to a fall in fuel and freight expenses, the two biggest cost components. Operating cost per tonne, thus, contracted by 7.5 per cent year-on-year and 2.7 per cent sequentially to Rs 4,326 as employee costs and per tonne other expenditure, too, fell.

With firm realisations and lower cost, EBITDA per tonne, according to analyst calculations, was at Rs 915, better than Rs 741 in the March’20 quarter but a shade lower than Rs 922 in the year ago period.

Volumes were in line with estimates, while cost controls surprised positively said Kunal Shah of YES Securities.

EBITDA (excluding other operating income) at Rs 444 crore, down by a third on a year-on-year basis, was way ahead of consensus estimate of Rs 363 crore.

Pre-tax profit at Rs 399.81 crore was in line with estimates of Rs 396 crore. Net profit at Rs 268 crore, down 41 per cent year-on-year and 16 per cent sequentially, was better than estimates of Rs 244 crore.

Post results, Emkay Global has raised its CY20, CY21 and CY22 EBITDA estimate by 51, 32 and 25 per cent, respectively, considering higher cement prices, cost-saving initiatives and improvement in demand scenario. Valuations appear attractive at 7.6x CY21 enterprise value (EV)/EBITDA and an EV/tonne of $79.

While the performance was strong and should lift investor confidence, its sustainability holds the key. Binod Modi at Reliance Securities maintains his positive stance, but says weak volume scenario remains an overhang on the sector for the near to medium term.

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