Stock Review: ACC

ACC, an all-India player, and its results for the March 11 quarter once again highlight the difficult operating environment for the broader cement sector. No doubt, in the quarter under review is the time when companies like ACC benefit from improved demand conditions due to the peak construction season, but they had to once again grapple with a rising cost structure. ACC realisations improved 3.1% YoY to . 3,883 per tonne in the first quarter of calendar year 2011, but it could not fully pass on higher input costs. ACC grappled with higher power and outward freight costs on a pertonne basis in the quarter.
As a result, its consolidated operating profit margin declined nearly 610 basis points YoY to 22.7% in the quarter under review, despite net sales that rose 13.6% to . 2,584 crore. ACC follows a calendar year for its financial results.

Its net profit also fell 10.9% to . 350.2 crore in the March 11 quarter, but its quarterly results were broadly higher than ETIG estimates. The stock rose 1.1% to . 1,122.6 on Tuesday, and it is also not too far from its 52-week high reached in early April 2011. ACC had also grappled with a fall in its operating margins in the December 10 quarter and the September 10 quarter on a YoY basis.

Going forward, while demand for cement is expected to remain strong in the June 11 quarter also, in the run-up to the start of the monsoon season, but cost pressures for the sector have not shown any signs of easing. This, in turn, could continue to put pressure on the margins of the company in the short term, say analysts.

During the March 11 quarter, ACC grappled with its power costs that rose 10.8% to . 783.4 on a per-tonne basis, apart from outward freight charges that rose 13.4% on a per tonne basis. ACC trades at a P/E of nearly 20.4 times on a trailing fourquarter basis and appears rather expensive.