On October 24, ACC, a cement-making company owned by the Adani Group, released its financial results for the second quarter of FY 2024 (July to September). The company reported a notable 48% drop in profit after tax (PAT), which fell to ₹199.7 crore. This result fell short of market expectations, with a CNBC-TV18 poll predicting a higher profit of ₹210 crore.
Revenue Growth and Record Volume Performance
Despite the decline in profit, ACC reported positive revenue growth. The company saw a 4% increase in its revenue, which reached ₹4,614 crore. This is the highest quarterly revenue achieved by ACC, surpassing earlier estimates.
A standout feature of the company’s performance was the 15% year-on-year (YoY) volume growth. ACC reported sales of 9.3 million tonnes of cement during the quarter, marking the highest Q2 volume performance in the last five years. This significant increase was driven by higher trade volumes and strong sales of premium products, which saw a 14% YoY growth.
ACC’s success in expanding its volume sales demonstrates the strong demand for cement in the market, even as the company faced profitability challenges.
Decline in Profitability and EBITDA Margins
Although revenue and volumes grew, ACC’s profitability took a hit. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the quarter fell by over 20% YoY, reaching ₹436 crore. The EBITDA margin also dropped to 9.5%, down from 12.4% in the same period last year. This 290 basis point contraction in margins highlights the cost pressures the company faced during the quarter, affecting its overall profitability.
Balance Sheet Resilience
Despite the decline in profit, ACC maintained a strong financial position. The company’s cash and cash equivalents at the end of the September quarter amounted to ₹2,921 crore. Additionally, ACC’s net worth rose by ₹172 crore, reaching ₹16,725 crore. These figures suggest that the company remains financially healthy, even in the face of profitability challenges.
Earnings Per Share Decline
ACC’s diluted earnings per share (EPS) for the quarter also dropped, reflecting the broader challenges in profitability. The EPS for Q2 was ₹10.5, down from previous levels, signaling a reduction in returns to shareholders due to the declining profits.
Future Outlook for the Cement Industry
Looking ahead, ACC remains optimistic about the prospects for the cement industry in the second half of FY 2024-25. The company expects a pickup in construction and housing activities post-monsoon, which will drive demand for cement.
The government’s infrastructure development projects, including roads, highways, railways, and metro systems, are expected to play a key role in boosting cement consumption. Additionally, the expansion of the Pradhan Mantri Awas Yojana, which aims to build affordable housing in rural and urban areas, along with increased industrial and commercial investments, is likely to contribute to future cement demand.
ACC estimates that cement demand could grow by 4-5% in FY 2025, suggesting that the company is well-positioned to benefit from the expected recovery in the market.
Stock Market Reaction
Following the release of its Q2 results, ACC’s stock price saw a slight dip. By early afternoon on October 24, the shares were trading 1% lower at ₹2,236.25 on the National Stock Exchange (NSE). The market’s reaction was likely influenced by concerns over the company’s declining profitability, despite the growth in volumes and revenue.
Key Challenges and Opportunities
ACC’s Q2 results present a mix of both challenges and opportunities. The company’s robust volume growth and record revenue indicate strong demand for its products, which has helped it maintain a leadership position in the market. However, the significant decline in profit, shrinking margins, and falling EPS suggest that rising costs and operational challenges are weighing on the company’s performance.
The 20% decline in operating EBITDA and the 290 basis point drop in margins highlight the growing pressure from higher input costs and operational inefficiencies. These are challenges that many companies in the cement industry are facing, as costs for raw materials, energy, and logistics continue to rise.
On the positive side, ACC’s strong balance sheet, with a cash reserve of ₹2,921 crore, provides the company with the financial flexibility to invest in growth initiatives and navigate the current challenges. The increase in net worth further strengthens ACC’s ability to fund future expansion and maintain its leadership position in the market.
Focus Areas for Future Growth
To sustain its growth momentum and improve profitability, ACC will need to focus on several key areas:
1. Cost Efficiency: Reducing input costs and improving operational efficiency will be critical in addressing the profitability challenges. This could involve optimizing raw material procurement, reducing energy consumption, and streamlining logistics operations.
2. Product Differentiation: ACC’s growth in premium product sales is a positive sign, and the company can continue to focus on product innovation to meet customer needs. Offering high-quality, differentiated products can help the company maintain its market position and improve profit margins.
3. Expansion in Key Markets: With the government’s infrastructure projects driving demand, ACC can look to expand its presence in regions experiencing high growth in construction activity. Focusing on urban areas and regions with major infrastructure projects can help the company capitalize on new opportunities.
4. Sustainability Initiatives: As the construction sector increasingly prioritizes sustainability, ACC can differentiate itself by focusing on eco-friendly products and practices. Reducing the carbon footprint, utilizing alternative fuels, and promoting sustainable building materials will help the company align with global trends.
5. Government Projects: By aligning with government initiatives like the Pradhan Mantri Awas Yojana and other infrastructure projects, ACC can position itself as a key supplier for these large-scale developments, further boosting its growth prospects.
ACC’s Q2 FY 2024 results reflect the complexities of operating in the cement industry today. The company’s strong revenue growth and volume performance underscore the demand for its products, while the significant decline in profit highlights the cost challenges it faces.
Despite these challenges, ACC is well-positioned for future growth. Its strong financial foundation, coupled with the expected recovery in cement demand, offers opportunities for the company to enhance its market leadership. However, improving profitability will require a focus on cost optimization, product innovation, and expansion into high-growth markets.
With favorable market conditions on the horizon, particularly driven by government infrastructure initiatives, ACC has the potential to recover from its current profitability slump and deliver stronger results in the coming quarters.
