Stock Review: ACC

WITH input costs rising and demand staying lukewarm, the market was not really expecting fireworks from cement companies. However, ACC has managed to pull off decent numbers for the first quarter of calendar year 2011. For the quarter ended March 31, 2011, its realisation jumped 11.6 per cent quarter-on-quarter to 3,893 a tonne, thanks to price increases across the country. Sequentially, total volumes rose 9.8 per cent and 10.4 per cent year-on-year.

Total revenues were up by 16 per cent sequentially, at 2,420 crore, and 13.4 per cent year-on-year. Volumes grew by 10.4 per cent on-year to 6.1 million tonnes in the first quarter, as against 5.5 million tonnes in the year-ago period. Analysts believe these numbers are very positive, as the industry has been facing pressures due to deceleration in construction activity and slowdown in infrastructure. Even though the March quarter is the best for the industry, a 14 per cent growth in sales implies the sector is seeing growth despite challenges. On the earnings side too, analysts were expecting earnings per share of `15. However, the company has managed an EPS of `18.5 in Q1. The good news, however, is not just limited to sales and volume growth. Overall, the cost per tonne has declined 4 per cent sequentially, pushing up EBITDA/tonne by a staggering 142 per cent. As the cost of raw material per tonne rose 33 per cent sequentially and freight rate jumped 5 per cent, these were offset by a decline in power and fuel cost. The company's low-cost coal inventory and increased use of captive power plants has improved efficiency.

Factoring the 30 per cent increase in the cost of domestic coal and 16 per cent sequential increase in that of imported coal, Edelweiss expects power and fuel cost to be 892 a tonne for CY11, up 15 per cent from the first quarter. Going forward, an increase in coal prices, as announced by Coal India, will start reflecting in the company's books from the second quarter. However, analysts are optimistic about a recovery in the demand environment as infrastructure and construction may well revive.