ACC Q2 preview: Net profit may jump 80%, volume and margin to be in focus
ACC Ltd, a leading cement manufacturer, is expected to witness robust consolidated net profit growth of approximately 80 percent on a yearly basis, amounting to Rs 410 crore in the September quarter of FY24. However, compared to the previous quarter, the company is projected to report a 12 percent decline in profit after tax, according to the consensus of eight brokerage estimates.
For the quarter under review, analysts anticipate the company’s revenue to reach Rs 4572 crore, reflecting a moderate year-on-year (YoY) growth of 2.3 percent. Nevertheless, sequentially, the company is likely to experience a 12.1 percent decline in revenue, primarily attributable to the impact of a weaker seasonal quarter.
Furthermore, the company’s EBITDA is expected to witness a substantial 68.85 percent year-on-year (YoY) increase, indicating strong operational performance. However, on a sequential basis, the EBITDA is projected to decline by 6.63 percent. Analysts attribute this decline to heightened cost pressures and lower realizations, which have potentially impacted the company’s overall profitability in the quarter.
As ACC Ltd prepares to release its quarterly financial results, the anticipated strong YoY growth in net profit and EBITDA reflects the company’s resilience and efficient operational management in the face of challenging market conditions. While certain factors have influenced the sequential performance, the company’s overall performance underscores its continued focus on operational excellence and sustainable growth within the competitive cement industry.
Analysts anticipate ACC to achieve a significant 21 percent year-on-year (YoY) volume growth, reaching approximately 8.3 million tonnes (MT). Despite this promising volume growth, the company may experience a 2 percent decline in cement realization compared to the previous quarter, consistent with the trends observed within the industry.
BoBCaps has highlighted ACC’s involvement in supplying cement to Ambuja under a supply agreement, and experts remain optimistic about its performance, projecting favorable outcomes despite starting from a relatively lower base. However, the company’s earnings have been impacted by lower prices in the southern region.
Furthermore, according to Axis Securities, the company’s volume is expected to grow by 18 percent YoY, primarily driven by increased sales to Ambuja and the commencement of operations at the new Ametha facility. While cement prices are expected to remain stable compared to the previous quarter, the overall price mix is forecasted to improve by 1 percent.
The projected volume growth and strategic supply agreements underline ACC’s efforts to strengthen its market position and optimize its production capacity. Despite the challenges posed by regional pricing dynamics, the company’s strategic initiatives, along with the positive industry outlook, are anticipated to support its growth trajectory and contribute to its overall performance in the upcoming quarter.
Analysts have projected a 1 percent increase in costs attributed to lower sales volume, resulting in a similar EBITDA of Rs 807 per ton. They have highlighted that year-on-year comparisons for EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and PAT (Profit After Tax) may not be meaningful due to significant cost changes experienced in the previous quarter, primarily associated with Adani’s takeover.
Amid these dynamics, analysts have observed a stable-to-positive pricing trend across most markets during the second quarter, which is a departure from the typical seasonal pattern. Recent price increases in the eastern and southern regions of India are expected to have an impact in the third quarter of FY24 rather than the second quarter. In September 2023, the average pan-India cement price witnessed an increase of Rs 15 per bag, driven by a substantial Rs 50 per bag hike in the eastern region. The southern region also experienced a price recovery of Rs 30-45 per bag in October.
However, historical data has raised concerns regarding the cement industry’s ability to sustain such sharp price hikes over the long term. Analysts caution that while further price increases could potentially occur in response to fuel cost inflation, maintaining pricing discipline remains critical for the long-term sustainability of the industry.
As the industry continues to navigate through evolving market dynamics, cement companies must balance their pricing strategies with the need for sustainable growth and profitability, taking into account both short-term market fluctuations and long-term industry stability. Such strategic pricing decisions will be instrumental in ensuring the resilience and competitiveness of cement manufacturers in the Indian market.
Analysts foresee a continuation of robust growth in cement demand, expected to remain within the low double-digit to mid-teens range. This sustained growth trajectory is primarily attributed to the strong impetus provided by ongoing government-led infrastructure projects, which continue to stimulate demand within the cement sector. Additionally, the relatively weak monsoon experienced in August 2023 has positively contributed to the demand for cement, although the pace slightly decelerated in September 2023 due to increased rainfall.
Furthermore, the upcoming general elections in India, scheduled for next year, are anticipated to sustain the momentum in cement demand throughout the remaining duration of FY24. Typically, such electoral events trigger a surge in construction and infrastructure development activities, further bolstering the demand for cement as a key building material.
The persistent strength in cement demand, fueled by both public and private sector construction projects, underscores the pivotal role of the cement industry in driving the growth and development of India’s overall infrastructure and construction sector. Cement manufacturers are likely to leverage these favorable market conditions to capitalize on the growing demand and reinforce their market position through strategic investments and operational expansion initiatives. By aligning their production capacities with the evolving demand dynamics and market trends, cement companies can position themselves for sustainable growth and profitability in the highly competitive Indian cement market.
