>ACC LIMITED (HDFC SECURITIES)

Some of the key highlights of Q3CY09 Standalone results are as follows:
■ ACC reported 10% y-o-y growth and 5.4% degrowth q-o-q in net sales in Q3CY09 to Rs.1,969.4 cr on account of lower volume growth. Volumes climbed merely by 2.8% y-o-y (though q-o-q, they were down 6.8%) to 5.14 mn tons. Average realizations for Q3CY09 stood at Rs.3,892/ton, up by 6.1% y-o-y and 2.8% q-o-q. The marginal growth in realisations could be attributed to low exposure to the Southern region, where prices have declined the most.

■ Cement prices in ACC’s key market of Central and North have retraced to levels of May 2009 (All-India price of Rs244/bag in September 2009), having peaked in the month of July 2009 with All-India prices at Rs254/bag.

■ ACC’s has been carrying out cost control measures so as to improve/maintain its margins. Freight cost in absolute terms increased by 7.7% q-o-q and 0.1% y-o-y due to the increase in rail freight and increase in lead distance. Power and fuel cost per ton fell 16.6% y-o-y to Rs.710.4/ton on the back of decline in coal costs. However, the benefit of lower coal prices was partially offset by increase in cost of raw materials like gypsum, slag and fly ash coupled with an increase in diesel prices and in royalty on limestone. Other expenditure also fell by 19.9% to Rs.749.2/ton in Q3CY09 as last year other expenses included consulting fees relating to implementation of SAP and alternate fuel research, which was not incurred this year. All this helped boost EBIDTA/ton by 48.2% y-o-y to Rs.1,320/ton but sequentially fell by ~Rs.30/ton.

■ Interest charges for the quarter were Rs.13.5 cr, which grew at 16.5% on y-o-y basis while, depreciation also increased by 8.1% to Rs.79.6 cr for the quarter. Tax rate for the quarter was 30.4%. On the back of improved operating efficiencies, ACC reported a healthy Q3CY09 PAT at Rs.435.7 cr, up 53.7% y-o-y, but down 10.3% q-o-q.

■ A major portion of the Bargarh expansion project was commissioned in Q3CY09. The commercial production is yet to be started as the plant is undergoing the trial runs and the same is expected to be completed by Q4CY09. The expansion programme at Wadi is on and is likely to be commissioned in Q1CY10. The grinding plant at Thondebhavi near Bengaluru is undergoing trials and the second grinding plant at Kudithini in Bellary District would be commissioned in Q4CY09. These projects would add 3 mn tonnes p.a. of capacity.

■ The Chanda expansion project which comprises a new line of 3 mn tonnes p.a. of cement alongwith an additional 25 MW CPP is progressing well and is scheduled for completion in Q4CY10. At the end of these project expansions, ACC will have a total capacity of 30.3 mn tones from the current capacity of 22.6 mn tonnes.

■ ACC’s expansion plans are concentrated in the southern and western regions, as 6.8 mn tonnes p.a. of its total planned capacity addition of 8 mn tonnes p.a. will be in these two regions. ACC has a relatively smaller market share in the southern region and with capacity expansion in this region, ACC’s presence could increase. However, in the medium term ACC could face challenges in ensuring volume throughput given the fact that the South is currently facing slow demand growth and new capacities coming on stream. Moreover instability in the South is beginning to result in companies diverting supplies westward.

■ Going forward, the cement prices could decline in coming quarters due to oversupply. Fall in cement prices, could lead to lower realisations. The margins of cement companies are expected to be under pressure on the back of rising input costs and cement pricing pressures. ACC would have to bear higher freight and fuel cost due to upward revisions in prices of domestic fuel in the month of July and revision in domestic coal prices by an average 11% by Coal India Ltd w.e.f October 16, 2009.

To read the full report: ACC LTD.