Associated Cement Companies (ACC) has reported an 87% decline in net profits at Rs 16.7 m for the quarter ended 30th September 1999. The company, however, posted a 6.4% rise in volume sales during the same period.
ACC is India's second largest cement company with a capacity of 11.6 m tonnes per annum. The company commands a 11.5% stake in the Indian cement market.
ACC's results are likely to come as a disappointment to most investors and industry watchers who were taking the recovery in the cement sector for granted. Now with the company having stated that the main reasons for its poor results was the sluggish growth volumes and prices in the eastern regions and the southern markets, where the price and volume growth was not upto expectations. The company has also incurred a 5% increase in the cost per tonne of cement sold to Rs 2,490 per tonne.
From the graph it is evident that during the second quarter there has been a sharp slowdown in cement offtake as compared to the first quarter of the current year. The second quarter has historically been a lean season for the cement sector because the monsoon sets in during this time. The company's performance has, however, lagged other industry majors like Gujarat Ambuja Cements
ACC has recorded a 5% jump in cost of production and this has largely been responsible for the erosion in margins. Interest costs declined by 8%, while depreciation costs were marginally higher. From the company's results it is evident that the recovery in cement sector is regional rather than across all markets. This implies that there is still some time left for a nationwide recovery in the cement sector. The sector's prospects for the next two-three years, however, continue to be bright.
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