India ACC 1Q net up 54.9% boosted by higher prices
Indian cement maker ACC Ltd Thursday said its fiscal first quarter net profit surged 54.9% on year, driven by higher cement prices.
The company, which is India’s largest standalone cement maker by sales volume, said it expects its production to rise in line with that of the cement industry, which is likely to fare well in the near term due to the country’s booming housing and infrastructure sectors.
However, analysts expect recent measures by the government to curb inflation to crimp the profits of cement makers after a few quarters. Cement makers had earlier decided to freeze their prices at current levels for a year.
Net profit for the January-March quarter climbed to INR3.64 billion from INR2.35 billion a year earlier, short of the average estimate in a Dow Jones Newswires poll of three analysts, who pegged net profit at INR3.65 billion.
Total revenue rose 23.8% during the quarter to INR17.03 billion from INR13.76 billion a year earlier with cement sales jumping 24.8% to INR16.75 billion.
ACC Managing Director Sumit Banerjee told Dow Jones Newswires that volumes were stagnant as some plants that were being expanded were operating at lower capacities.
"Volumes will be in tune with the industry going forward, and their expectations are (an increase of) 8-9%. In the coming quarters, we should be keep in line with these figures," Banerjee said.
At the close of trading, shares of ACC were trading 3.5% down at INR788.10 on profit taking after the announcement of first quarter results on the Bombay Stock Exchange, as the 30-stock Sensex was down 0.4% at 13,619.70. The stock had ended at INR816.75 Wednesday, up 12.5% from its close April 12.
ACC, which is 38%-owned by Swiss major Holcim Ltd. (HOLN.VX) as of March 31, said in a statement that domestic cement industry sales have grown about 6.6% during the quarter.
It said net profit during the quarter was helped by more sales of blended cement, a value added product that is priced higher, and cost reduction measures.
"Despite the marginal de-growth in volumes, significantly improved cement price realizations during the March quarter on a year-on-year basis helped the company report a robust net sales growth and report a substantial improvement in operating margins," said Hitesh Agarwal, an analyst with Mumbai-based brokerage, Angel Broking.
He said cement prices on average had risen by 18%-20% on year in the January-March quarter, but for ACC the rise was 27% due to higher prices in western and northern India and the premium pricing of the brand. ACC and a few other large players sell their product all across India, while others sell in pockets.
"Going forward, while we expect the company to report strong numbers for the next couple of quarters, the growth will start to taper off in the absence of the pricing power owing to the cement price freeze the industry has agreed upon and partly because of the high base effect of last year," he added.
ACC, like other Indian cement makers, is expected to be hurt by an agreement between the industry and the government to hold prices for a year to help check inflation.
In the annual budget for the current fiscal year, which began April 1, the government imposed a differential excise tariff on cement based on selling price, effectively raising the levy. Excise tariffs on cement sold at a more than INR190/bag was raised to INR600 a ton. For cement makers who sell their bags at no more than INR190/bag, the excise tariff was reduced to INR350 a ton.
ACC’s total expenses rose 14.9% during the first quarter to INR11.68 billion from INR10.16 billion a year earlier, mainly due to higher excise duties and freight charges.
However, the company managed to cut its interest cost to INR39.9 million during the quarter from INR193.7 billion a year earlier due to loan paybacks.
The company’s board also approved the sale and transfer of its ready mix concrete business, to ACC concrete Ltd., a new unit which is being incorporated.
"This is expected to give the business the required focus, and access to resources, for implementing its growth plans," the company said.
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