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ACC: Volumes dip, op. margins decline
May 4, 2013

ACC has announced its results for the first quarter of the calendar year 2013 (1QCY13). During the quarter ended March 2013, the company's standalone sales and net profits reported a rise of 2.4% YoY 181.7% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increase marginally by 2.4% YoY during the quarter.
  • Operating profits decline by 25.4% YoY due to higher costs.
  • Operating margins contract from 21.1% in 1QCY12 to 15.3% in 1QCY13.
  • Other income rises by 31.7% YoY, while interest expenses decrease by 65.8% YoY.
  • Net profit rises by 181.7% YoY on account of lower tax incidence during the quarter and exceptional losses in 1QCY12.

Standalone financial snapshot
(Rs m) 1QCY12 1QCY13 Change
Net sales 28,430 29,111 2.4%
Expenditure 22,442 24,643 9.8%
Operating profit (EBITDA) 5,988 4,468 -25.4%
EBITDA margin 21.1% 15.3%  
Other income 1121 1475 31.7%
Depreciation 1,305 1,383 5.9%
Interest 316 108 -65.8%
Profit before tax & exceptional items 5,487 4,452 -18.9%
Exceptional gain/ (loss) (3,354) -  
Profit before tax 2,134 4,452 108.7%
Tax 580 75 -87.0%
Effective tax rate 27.2% 1.7%  
Profit after tax 1,554 4,377 181.7%
Net profit margin 5.5% 15.0%  
No of shares (m) 187.7 187.7  
Diluted EPS (Rs)*   71.6  
P/E (times)   17.2  
*trailing twelve month earnings

What has driven performance in 1QCY13?
  • On a standalone basis, ACC's net sales rose marginally by 2.4% YoY during the quarter ended March 2013. Sales volumes were lower by 4.5% YoY.

  • On the cost front, most major cost heads such as raw material costs, freight and forwarding expenses, and other expenses increased by 1.5% YoY, 1.1% YoY and 3.7% YoY respectively (as a percentage of net sales). However, power & fuel expenses declined by 1.5% YoY (as a percentage of net sales). Operating margins contracted from 21.1% in 1QCY12 to 15.3% in 1QCY13.

    Operating cost break-up
    (Rs m) 1QCY12 1QCY13 Change
    Raw materials consumed 3,195 4,319  
    Purchases of stock-in-trade 376 503  
    Change in inventory 252 (478)  
    Total raw materials cost 3,823 4,344 13.6%
    % of net sales 13.4% 14.9%  
    Employee expenses 1,322 1,614 22.2%
    % of net sales 4.6% 5.5%  
    Power & fuel expenses 6,764 6,496 -4.0%
    % of net sales 23.8% 22.3%  
    Freight & forwarding expenses 5,711 6,166 8.0%
    % of net sales 20.1% 21.2%  
    Other expenses 4,822 6,024 24.9%
    % of net sales 17.0% 20.7%  
    Total operating expenditure 22,442 24,643 9.8%
    % of net sales 78.9% 84.7%  

  • Other income increased by 31.7% YoY during 1QCY13. While depreciation charges increased by 5.9% YoY, interest expenses decreased by 65.8% YoY.

  • Owing to the poor operating performance, profit before tax and exceptional items was lower by 18.9% YoY.

  • However, the company reported a surge of 181.7% YoY in net profits on account of exceptional losses in 1QCY12 arising due to change in depreciation method on fixed assets pertaining to Captive Power Plants from the 'Straight Line' method to 'Written Down Value' method. The tax expenses were also substantially lower on account of Rs 1.4 bn reversal of tax provision related to earlier assessment year.

What to expect?

ACC's performance during the quarter was impacted by sluggish cement demand and continued pressure on operating costs. Owing to the overall slowdown in the domestic economy, the outlook for the cement sector for the short to medium term remains subdued. However, we expect the sector to grow at about 7- 8% over the next few years driven by demand for housing and infrastructure in the country.

At the current prices of Rs 1,230 the stock is trading at 17.2 times its trailing twelve month standalone earnings. In our previous quarterly result, we had changed our view on the stock from 'Sell' to 'Hold' from a 2-year perspective. We reiterate our 'Hold' view on the stock from a 2-year perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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