A decision to change with retrospective effect the method of providing for depreciation on captive power plants has resulted in the virtual halving of ACC Ltd’s net profit in the first quarter of its FY year (January-March, as its FY is Jan-Dec).

While the January-March quarter PAT without the changes would have been slightly higher compared to the corresponding first quarter of 2011, an across-the-board cost increase seems to have eroded margins in Q 1 of 2012.

According to the standalone audited results, the total operational income was Rs 2,889.09 crore in January-March 2012 compared to Rs 2,423.54 crore in the same quarter last year. The profit from ordinary activities before finance costs and exceptional items was higher at Rs 580.35 crore (Rs 508.65 crore).

But a change in the method of providing for depreciation, with retrospective effect, on captive power plants from the ‘straight line’ to the ‘written down value’ method resulted in an additional depreciation charge of Rs 341 crore. An amount of Rs 335 crore relating to earlier years has been disclosed as an exceptional item, resulted in net profit (PAT) sliding to Rs 155.37 crore after taking in tax expenses. This was in sharp contrast to the net profit of Rs 350.6 crore recorded in Q1 of 2011. The EPS was Rs 8.28 (face value of share Rs 10) in Q1 of 2012 compared to Rs 18.68 in the corresponding quarter last year. However, the EPS before exceptional items (net of taxes) was Rs 20.34 (Rs 18.68).

In a note attached to the results, Mr Kuldip Kaura, CEO and MD, ACC, said the change in provisioning for depreciation ‘will result in a more appropriate presentation and will give a systematic basis of depreciation charge, representative of the time pattern in which the economic benefits flow to the company’. He said PAT for the first quarter of this year would have been higher by Rs 230.56 crore if the company had continued with the earlier method of depreciation.

ACC said while it benefited from better volumes during the quarter, production costs and realisations were hit because of increase in the price of raw materials such as  coal, fly ash and gypsum. Freight costs too went up.

ACC shares came under some selling pressure after the results with the stock shedding Rs 20.15 to trade at Rs 1,276.95 in the BSE. In about two months, ACC scrip has lost about 10 per cent. It touched a 52-week high of Rs 1,421.95 on February 10, 2012, on the BSE.

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