ACC announces muted dispatch numbers for Nov 2011

ACC recently came out with its dispatches numbers for Nov 2011. Both, the production and and the dispatches for the month stood at 1.83 MT. The dispatches have grown by 5% on a YoY basis whereas production grew by 4%. This has come in line with the expectations, as we believe that growth will remain muted due to a slowdown in infrastructure and construction activities as well as high interest rates, and will take some time to pick up pace.

However, if we look at the MoM performance of the company, the dispatches have declined by 7%, mainly due to the slowdown in the economy. Cement is a cyclical business, and generally, the 2nd half of the financial year remains better than the 1st half. However, the dispatch numbers for Nov have remained muted, which indicates the slow pickup in demand.

The the QoQ performance in the current quarter, i.e. Q3 CY11, remained subdued, as the company reported a 45% decline in operating profits to Rs 317 cr. The decline in profits was largely due to an increase in input costs of the company. The total cost as a percentage of sales rose by 1200 bps on account of higher fuel prices and freight charges, which has been the major reason for the dismal performance during the quarter.

We, at DSIJ, believe that cement companies will witness a moderate growth in volumes in the coming quarter, as the pickup in demand will remain subdued. However, companies will try to increase the revenues by further increasing the cement prices and cutting down production in order to offset the high coal prices and freight charges, which constitute 50% of the total cost. Higher input costs will put some pressure on their margins in the coming quarter.