ACC up 3% as better realizations, cost controls help September quarter earnings

Realization of better gray cement and higher RMC (ready-mix concrete) and other operating income offset the impact of cost inflation to some extent. Though gray cement receipts declined sequentially, the decline was lower than expected. “Grey cement realization down 1.8% quarter-on-quarter” ₹5,058/tonne versus 3% decline due to marginal change in regional mix in east to central markets, analysts at Emkay Global Financial Services Ltd said in a report.

Shares of the company rose 3% in early trade on Wednesday reacting to the earnings call of the company on the NSE.

The sharp increase in fuel and diesel prices, and higher packing material and maintenance costs resulted in an increase in operating costs/tonne, up 5% year-on-year and 4% sequentially. ₹4,171. However, the higher cost was partially offset by the shorter lead distance and the different cost efficiencies achieved through the project ‘Mountain’. The company’s management said that to mitigate the impact of rising diesel costs, it continued to focus on geo-mix improvements, direct dispatch, network optimization and procurement savings. These measures have resulted in a 1% decline in freight cost/tonne on a year-on-year basis.

“ACC has taken several cost reduction initiatives which have helped in easing the cost pressure thereby improving its profitability. These initiatives include: ‘Project Mount’, resulting in cost savings of ₹110/ton in CY20 and is durable; Master supply agreement with Ambuja Cement to synergize operating cost; high share of premium products; and reduction in fixed costs,” analysts at Motilal Oswal Financial Services Ltd said in a report. ₹972 in CY20 and expected to improve ₹1,157 in CY23. CAGR is short for Compound Annual Growth Rate.

That said, analysts caution that the full impact of cost inflation will begin to be visible for the ACC from calendar year 2022. ACC treats the calendar year as a fiscal year.

Meanwhile, its volume growth was flat year-on-year at 6.7 million tonnes. Management expects continued strong demand due to improving housing demand, the government’s focus on infrastructure development, and improved demand in industrial and commercial construction. Management further said that its capacity expansion plan in central India is progressing well.