ACC: It is still a long way baby!! - Views on News from Equitymaster

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ACC: It is still a long way baby!!

Apr 19, 2000

According to newspaper reports, Associated Cement Companies (ACC) has successfully reduced the number of employees by 2,150 by offering them attractive voluntary retirement schemes. The number of employees after this reduction would be 11,000. This is commendable for a company that had 15,280 employees in FY95. Apart from other manufacturing inefficiencies, huge employee costs has always been a drag on the profitability of ACC. The company has in the recent past taken steps to improve its profitability and productivity. However, it still has a long way to go to achieve the employee productivity levels that the more efficient players in the industry have been achieving.

In FY99, on a per employee basis GACL is well ahead of the other players. Cement sold per employee for ACC is 31% of GACL and 47% of Madras Cements and revenues per employee for ACC is 37% of GACL and 69% of Madras cement.

Between GACL and Madras Cements, employees of GACL sell 52% more cement than Madras Cements and earn 88% higher revenues and 311% higher profits than Madras Cements.

 ACC
(March 99)
GACL
(June 99)
Madras Cements
(March 99)
No. of employees (approx) 13,018 2,300 1,750
No. of tones sold per employee 709 2,300 1,511
Revenues per employee (Rs “000”) 2,002 5,444 2,894
Net profits per employee (Rs “000”) (60) 531 129

These figures for ACC will look marginally better after the reduction in the number of employees.

The market has not ignored these differences and has given lower value to ACC compared to GACL. Market capitalization for ACC is Rs 2,250 per tonne compared to Rs 4,500 per tonne for Gujarat Ambuja and Rs 1,500 per tonne for Madras Cements. Although ACC appears expensive, the higher valuations for ACC compared to Madras Cements probably reflects the fact that with GACL taking a stake in ACC, there is a possibility of substantial improvement in ACC’s efficiencies.

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