Results Analysis ACC . Lockdown drags ACC fourth-quarter sales

Citing the nationwide lockdown as a major reason for the slump in demand, ACC reported a 12 per cent y-o-y drop in sale volumes in the March quarter to 6.56 million tonnes (mt). Consequently, revenues for the quarter dropped 11 per cent y-o-y to ₹3,433 crore.

Despite weak volumes and marginally low realisations, the company managed to report a 10 per cent y-o-y increase in operating profit, thanks to a tight rein on costs. EBITDA for the March quarter stood at ₹586 crore.

However, the net profit declined 7 per cent y-o-y to ₹323 crore in the first quarter of CY2020, owing to an unfavourable base effect.

The company had earned interest on a tax refund to the tune of ₹99 crore in the corresponding quarter last year, which had bumped up the profit then.

Silver lining

Amid the weak demand scenario, the company managed to contain the drop in realisations to just 1.5 per cent y-o-y with optimisation of product mix — a healthy growth in volumes of premium products.

That apart, EBITDA per tonne surged by 24 per cent y-o-y to ₹798 per tonne on account of a significant drop in raw material cost and fixed cost.

The raw material cost per tonne dropped by 16 per cent y-o-y in the March quarter on account of optimisation of material source mix and better supply-chain management.

This followed an already 15 per cent y-o-y in raw material cost per tonne in calendar year 2019.

Lower cement volumes in the March quarter resulted in a 2 per cent drop in fixed cost per tonne as well. While the power cost per tonne spiked by 4 per cent y-o-y, logistics costs saw a 1 per cent decline owing to better planning and warehousing cost rationalisation.

Outlook

A double-digit drop in volumes, reported by the country’s third-largest cement manufacturer is indicative of the weak domestic demand.

More so, because the lockdown was in effect for just about 10 days in the quarter gone by.

The management sounds hopeful of demand recovery in the latter half of FY21. It expects quicker recovery in rural housing demand and revival at a moderate pace for infrastructural development and real-estate construction.

Add to this, the reduced spends from the Centre for infrastructural projects due to ashift in priority (more towards health) may result in fewer order awards.

That apart, private-run projects may see a slump due to lower end-use demand post-lockdown. Also, timely onset of monsoon in the quarters ending September and December could make matters worse for cement manufacturers in the second half of FY21 as well.

On the rural front, irregular harvest in the rabi season, aggravated by the problems in transportation of farm produce, could lead to a decline in rural income. The rural demand for cement might get impacted unless there is a significant recovery in rural income.

For large cement manufacturers such as ACC, while consolidation in the industry helped cut down on costs, demand slump in the coming quarters can increase cost due to lower capacity utilistion. That said, ACC’s strong financials, with a net worth of ₹11,521 crore and zero debt, can help weather near-term challenges better.

The company reported healthy operating cash flows to the tune of ₹2,248 crore in the year ended December 2019, exhibiting a sound working capital profile.

However, the company’s capex project pipeline for 2020, to the tune of ₹3,000 crore, for a 3 mt clinker unit in Madhya Pradesh and four grinding units totalling 5.9 mt capacity in central and east regions, could get extended.

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