ACC posts ₹87 crore loss in Sept quarter; what should investors do now?

ACC Limited (ACC), now a part of the Adani Group, posted a surprise consolidated net loss of ₹87.35 crore for the third quarter ended September 2022, dented by higher fuel and power expenses. The company, one of India's leading producers of cement and ready-mix concrete, had posted a consolidated net profit of ₹450.2 crore in the year-ago period and ₹227.35 crore in the June quarter (Q2 FY22).

On the standalone basis, the cement major, which follows the January-December financial year, reported a net loss of ₹91.09 crore as compared to a net profit of ₹449.04 crore in the same period last year and ₹222.17 crore in the previous quarter.

The loss was in sharp contrast to D-Street estimates as analysts on average were expecting the company to report a profit of ₹133 crore for the September quarter, as per IBES data from Refinitiv.

Net sales climbed 7% to ₹3,910 crore in Q3 FY22, as against ₹3,653 crore in the corresponding quarter of the previous year, ACC said in a BSE filing on Monday.

During the quarter under review, EBITDA (earnings before interest, tax, depreciation and amortisation) dropped sharply to ₹16 crore versus ₹713 crore in the year-ago period, largely due to steep rise in fuel cost.

ACC’s production cost increased 8.4% QoQ to 5,797 per tonne, while it was up 25.4% YoY. Power and fuel surged 60.3% YoY, while it increased by 10.8% on a sequential basis. Freight costs were also higher by 9.6% YoY, flat QoQ on a per tonne basis. Total expenses jumped 30% to ₹4,162 crore, from ₹3,204 crore in the same period last year.

Cement volume grew 4% as compared to the same quarter last year, while ready mix concrete volume surged 10% over the same quarter last year.

Commenting on earnings, B. Sridhar, Whole Time Director & CEO, ACC, said, “The post-monsoon quarter will see the traditional rebound for the cement sector, including for ACC. We have had significant cost pressures in the recent past due to a steep fuel price rise. However, the recent cooling off in energy costs will impact us positively in the coming quarters.”

Analysts' view on ACC Q3 earnings

As many as nine analysts have given long term price targets for ACC. The cement major has an average target price of ₹2,509.11, an upside of 10.5% from Monday’s closing price of ₹2,270.

Morgan Stanley

The global brokerage has maintained an 'underweight' rating on the stock, while it trimmed the target price after the earnings missed estimates. It has cut the price target to ₹1,950, from ₹2,050 per share projected earlier, citing that the company's EBITDA was well below estimate on weaker-than-expected costs. "We have revised estimates to reflect the miss. We have maintained relative underweight call given lower growth expectations versus peers," it said.

Citi

The brokerage has also maintained the 'Buy' call on the stock with a target at ₹2,900 per share, saying that the cement company may benefit from potential synergies with Adani group.

Jefferies

Another global brokerage house has kept the 'Buy' call on ACC with a target price at ₹3,000 per share. The agency, however, lowered the FY23 EBITDA estimate by 13%, while it retained FY24 estimates.

Goldman Sachs

The brokerage has maintained a 'neutral' call on the stock with a target at ₹2,375 per share. The agency opined that the company may achieve cost rationalisation benefits in the next 3-4 quarters.

Motilal Oswal

The domestic brokerage has maintained a 'Neutral' rating with a target price of ₹2,430, from ₹2,515 earlier. The brokerage in its report said that ACC is increasing its grinding capacity by 3.2 MTPA in Central India to 39.3 MTPA by FY24, which is likely to benefit the company in terms of better volume growth. The report also mentioned that agency awaited clarity from the management over its cost-saving strategies and future growth plans.

ICICI Securities

The brokerage house has downgrade the stock to “ADD” from “Buy” and reduced target price to ₹2,580, from earlier estimates of ₹2,615 per share. The agency has cut CY22E-CY23E EBITDA estimates by 6-33%, factoring-in the higher-than-expected cost inflation.

Meanwhile, shares of ACC opened lower at ₹2,259.95, against the previous closing price of ₹2,269.70 on the BSE. The largecap stock has declined as much as 0.86% to hit a low of ₹2,250 in the opening trade.