ACC’s earnings decline due to disappointing June quarter performance

given that cement industry Struggling with intense cost pressures, ACC’s sharp operating margin compression was a major drawback. Total cost on a per tonne basis grew by 23% year-on-year (Yoy) and 9% sequentially due to jump in input cost. Although receivables improved sequentially and yearly in Q2CY22, it was not sufficient to reduce margins. EBITDA margin declined by about 1,300 basis points (bps) year-on-year and by about 480 bps sequentially. Ebitda is short for earnings before interest tax, depreciation and amortization. In addition, Ebitda/tonne fell to a multi-year low.

“ACC has narrowed the margin on margin with peers over the years due to a visible reduction in manufacturing cost and higher operating efficiencies under the ‘Parvat’ program under the Master Supply Agreement (MSA) with Ambuja Cement. The medium is supplemented by rationalization of logistics costs.” Analysts of Prabhudas Lilladher said. However, the scope for further reduction in cost is limited as most of the lever is already captured in the current cost dynamics, except for reduction in electricity cost due to upcoming waste heat recovery plants.

Although sales volume rose 10.5% year-on-year to 7.6 million tonnes, ahead of analysts’ estimates, it was aided by a low base from last year, when sales were zero due to the second wave of the pandemic.

Following the cement maker’s Q2 22 earnings, several brokerages have slashed the company’s earnings estimates for CY22 and CY23. Along with this, he has also cut the rating of the stock.

Interestingly, despite challenges from the cement sector, the stock of ACC has seen less decline than the Nifty 50 so far this calendar year. ACC has also outperformed its peers UltraTech Cement Ltd., Ambuja Cements Ltd. and Shree Cement Ltd. This can be attributed to the fact that there will be an open offer post the acquisition by Adani Group.

Historically, ACC has lagged behind in capacity addition compared to other relevant players in the industry. Analysts at Motilal Oswal Financial Services Ltd said, “During FY 2008-22, ACC’s grinding capacity reported a CAGR of 9-18% CAGR versus other major players’ CAGR of 4%.” CAGR is short for Compound Annual Growth Rate. Hence, growth plans and cost saving strategies by the new management will be the major triggers for the stock performance, the domestic brokerage house said.

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