The March quarter profit of ACC, one of the biggest cement producers in the country, by and by featured the organization’s qualities in a difficult market condition. The concrete volumes were lower by virtue of the across the nation lockdown in March, however, the development in margins supported overall profitability. The close term standpoint seems unusual because of the predominant financial vulnerability, yet its outcomes support our conviction in the drawn-out suitability of the business.
ACC detailed incomes of Rs 3,433 crores in Q1 CY20. Income declined 11 percent year-on-year (YoY) on the rear of compression in cement volumes to 6.6 million tons. The quarter began a consistent note as volumes were generally steady all through January and February. Be that as it may, lockdown in March (to battle the spread of coronavirus) antagonistically influenced cement offtake and hauled volumes lower.
In the midst of the weak demand situation, the organization figured out how to contain the drop in acknowledge to simply 1.5 percent y-o-y with the enhancement of product blend — a solid development in volumes of premium products.
That separated, EBITDA per ton flooded by 24 percent y-o-y to ₹798 per ton by virtue of a huge drop in raw material expense and fixed expense.
The raw material expense per ton dropped by 16 percent y-o-y in the March quarter by virtue of advancement of material source blend and better logistics and supply chain management.
This followed an effectively 15 percent y-o-y in raw material expense per ton in the schedule year 2019.
Earnings Season: ACC Cements Quarterly Results
Lower cement volumes in the March quarter brought about a 2 percent drop in fixed expense per ton also. While the power cost per ton spiked by 4 percent y-o-y, logistics costs saw a 1 percent decay attributable to better arranging and warehousing cost rationalization.
A twofold digit drop in volumes, detailed by the nation’s third-biggest cement producer is demonstrative of the powerless household demand.
All the more in this way, in light of the fact that the lockdown was as a result of pretty much 10 days in the quarter passed by.
The company administration sounds confident of real demand recuperation in the last 50% of FY21. It expects speedier recuperation in rural housing demand and recovery at a moderate pace for infrastructural project development and real estate & land development.
Add to this, the massive spending cuts from the Center for infrastructural extend due to a shift in need (more towards wellbeing) may bring about less order.
That separated, private-run ventures may see a droop because of lower end-use requests post-lockdown. Additionally, the auspicious beginning of rainstorms in the quarters finishing September and December could exacerbate the situation for cement producers in the second 50% of Financial Year 2021 also.
ACC Cements Future Outlook
On the provincial front, the unpredictable harvesting system in the rabi season, irritated by the issues in the transportation of homestead produce, could prompt a decrease in rural agricultural income. The provincial interest for cement may get affected except if there is a huge recuperation in rural household income.
For huge cement makers, for example, ACC, while the combination in the business helped cut down on costs, request droop in the coming quarters can build cost because of lower limit utilization. So, ACC’s solid financials, with total assets of ₹11,521 crores and zero debt on its books, can help overcome short term difficulties better.
Actual Realisations were muted over ACC’s key targeted markets (South and East). Realizations were likewise bolstered by an expanded spotlight on the top-notch fragment and worth included arrangements. During the quarter, the organization likewise authorized two new plants of RMC (Ready Mix concrete) to reinforce its impression in the building materials domain.
The economy keeps on being under lockdown however fractional resumption of development exercises, for example, roads and infrastructure ought to step by step observe a facilitating of stock at organization and seller terminals. Notwithstanding, an increase underway and execution show up far-fetched until the storm season because of the relocation of work back to the places where they grew up and limitations on activities. With private capital consumption slowing down, request recovery is principally subject to government spending on infrastructure projects.
For ACC, the two volumes and Realizations could confront descending weight across geologies. High penetration to Southern locale (having an abundance limit and strictly competitive market) could drag profitability dynamics down throughout the following 2-3 quarters. In general, the organization appears to be all around situated to beat the present moves attributable to its solid monetary record. Toward the finish of Dec-19, it had a money balance in the abundance of Rs 4,000 crores, which should assist it with enduring the emergency.
ACC Cements Buy Recommendation
As far as valuations, at 7x trailing year EV/EBITDA, the stock right now exchanges at a huge markdown to comparative and competitive peers. While we keep up our positive position on the business and its drawn-out perceivability, the securities exchange keeps on being unpredictable considering disintegrating macroeconomic conditions and financial specialists, and investors should wait for a good market correction and should buy slowly in parts with a Long term investment horizon.