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ACC: Poor show - Views on News from Equitymaster

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ACC: Poor show
Jul 25, 2008

Performance summary
  • Consolidated topline grows by a marginal 6% YoY in 1HCY08 on account of slowdown in both volumes and realisations.

  • Operating margins contract by 7% as costs grow at a faster pace as compared to topline.

  • The fall in net profits was arrested by extraordinary income. Excluding the extraordinary income, the 23% YoY fall in net profits is steeper compared to decline in operating profits.

  • On a standalone basis, while the topline has reported marginal growth of 2.5% YoY in 1HCY08, bottomline declined by 10% YoY due to increased operational costs and lower realisations.

    Consolidated financial performance snapshot
    (Rs m) 2QCY07 2QCY08 Change 1HCY07 1HCY08 Change
    Net sales 18,913 19,201 1.5% 35,860 38,166 6.4%
    Expenditure 13,480 15,187 12.7% 25,257 29,545 17.0%
    Operating profit (EBITDA) 5,433 4,014 -26.1% 10,602 8,621 -18.7%
    EBITDA margin 28.7% 20.9%   29.6% 22.6%  
    Other income 519 466 -10.3% 956 1,029 7.7%
    Interest 131 108 -17.3% 303 164 -46.0%
    Depreciation 736 772 5.0% 1,500 1,555 3.7%
    Profit before tax/(loss) 5,086 3,599 -29.2% 9,755 7,932 -18.7%
    Extraordinary items - 123   59 425 620.3%
    Minority interest 3 (1) -122.3% 5 (1) -128.9%
    Share of profit and loss of associates - 7   2 7 302.8%
    Profit from extraordinary activities 5,082 3,730 -26.6% 9,812 8,366 -14.7%
    Tax 1,592 1,179 -25.9% 2,820 2,572 -8.8%
    Net profit 3,490 2,551 -26.9% 6,992 5,794 -17.1%
    Net profit margin 18.5% 13.3%   19.5% 15.2%  
    No of shares (m)       188 188  
    Diluted EPS (Rs)*         69.6  
    P/E (times)         7.9  
    Note: The numbers are not strictly comparable to the corresponding period of 1HCY07,
    as the company has divested stake as well as invested in certain subsidiaries and associates.

    What has driven performance in 1HCY08?
    • ACC’s revenue growth slowed down to 6.4% YoY in 1HCY08, mainly on account of muted volume growth. For 1HCY08, volumes have grown by nearly 4% YoY while during the quarter, the same have witnessed a marginal decline on account of lower availability of cement from two of its plants and constraints in dispatches. Further, the announced capacities have started coming on stream and the same have started exerting pressure on realisations. The company’s realisations have also been muted, growing by 2.5% YoY in 1HCY08. Thus, slowdown in growth of volumes as well as realisations has limited growth in topline during the fist half of the calendar year.

      Cost break- up
      ( % of sales) 2QCY07 2QCY08 1HCY07 1HCY08
      Consumption of raw materials 14.0% 12.7% 13.0% 14.3%
      Staff cost 4.9% 5.5% 4.6% 5.0%
      Power and fuel 15.2% 20.9% 15.4% 19.1%
      Outward freight 13.7% 13.5% 14.2% 13.1%
      Other expenditure 20.6% 22.9% 20.3% 22.1%
      Excise duty 1.3% 2.1% 1.8% 1.9%
      Purchase of cement and other products 1.5% 1.6% 1.2% 1.8%
      Total expenses 71.3% 79.1% 70.4% 77.4%

    • The operating margins of the company have contracted by almost 7% YoY in 1HCY08 as costs grew at a much faster pace as compared to the topline. It should be noted that the cement companies’ case was made difficult as on the one hand costs were rising and on the other hand, they were not allowed to increase prices of end products. This contributed significantly to the margin squeeze.

    • The overall operational cost has increased by 13% YoY on a cost per tonne basis in 1HCY08. The spurt in cost of operation can be attributed to the staggering rise in input cost such as fuel. Besides, the other cost heads have also exerted pressure on margins.

    • At the net level, the 4% YoY contraction in margins in 1HCY08 is tad lower compared to EBITDA margins. The same has been arrested by lower interest outgo and extraordinary income. Excluding the extraordinary income, the net profits have declined at steeper rate of almost 23% YoY during the period under consideration.

    • The extraordinary income includes profit on sale of land (Rs 1,229 m) and profit on disposal of the investment in the company’s wholly owned subsidiary ACC Machinery Company Ltd. (Rs 303 m).

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