ACC Cement Q3 Earnings Review

ACC Cement, one of the largest cement manufacturing companies in India, announced its Q3FY12 results on February 9, 2012 and reported strong QoQ and YoY performance. This was mainly on account of a slow pick-up in demand and higher realisations during the quarter. The revenue of the company has improved by 22 per cent on a YoY basis to Rs 2,555 crore. The highlight of the result is the improvement in its net profit which has increased by 83 per cent on a yearly basis to Rs 470.44 crore. This was largely on account of better realisations, stock adjustment and higher ‘other’ income portion which grew by 89 per cent to Rs 45 crore against the same period last year.

Also, the performance of the company post monsoon was quite good on a QoQ basis. It reported a jump in net sales by 13.6 per cent due to a pick-up in demand in the construction and real estate activity. The year-to-date performance of ACC in terms of dispatch has been good, having grown by 12 per cent on an YTD basis. However, this was largely on account of the capacity expansion of its plant at Chanda which led to higher production as compared to the previous year.

The cement companies post-monsoon have seen some pick-up in demand which was in tandem to the prices that also increased during the quarter across all the regions except the south where the prices have remained flat or have seen marginal improvement largely due to production discipline. We believe that the company has posted robust Q3 numbers, in particular the bottomline of the result which was above our expectations. And going forward we expect the company to post decent numbers in Q4FY12 mainly on account of the further pick-up in demand from the infrastructure and construction activities which also cyclically remains the best quarter for the cement sector.

At its current market price of Rs 1,388.50 the scrip is trading at a P/E of 19x at a trailing EPS of Rs 70.52. The valuation looks fair given the improvement expected in demand in the ongoing quarter. Also, the company has posted decent margins on the back of higher realisations which may not correct in the near term due to a pick-up in demand. However, a hike in the coal prices may impact the margins going forward. Keeping in view the above points we believe that there is still some marginal upside in the stock. We therefore recommend that investors should accumulate the scrip during the dips.