ACC share cracks 2% as Q2 profit tumbles 60%; what should investors do now?

Shares of ACC, which has been recently acquired by the Adani group, dropped over 2% on domestic bourses on Friday after the cement major reported disappointing earnings in the June quarter due to muted demand and a significant increase in input costs. The profit margin was impacted by a record spike in global fuel prices and related inflationary pressure despite strong volume growth.

ACC share price opened lower for the second straight session at ₹2,126 as compared to the previous day closing price of ₹2,156.40 on the BSE. Extending opening losses, the stock fell as much as 2.1% to hit a low of ₹2,111.3 due the trade so far. ACC shares have delivered a muted return of 1.5% in the past one year, while it has fallen 10% in the last six months. In the calendar year 2022, the Sensex heavyweight has dropped nearly 5%, while it has risen 1% in the past one month.

At the time of reporting, the stock was trading 0.6% lower at ₹2,143.80, in sync with the broader market which witnessed lackluster trade in absence of any major triggers. The stock is up nearly 13% from its 52-week low of ₹1,900.50 touched on March 7, 2022, while it traded 17% lower than its 52-week high of ₹2,587.95 on November 15, 2021.

In a post-market hour release on Thursday, ACC posted a 60% fall in consolidated profit after tax of ₹227 crore for the second quarter ended June 30, 2022, from ₹569 crore in the same quarter last year. On a quarter-on-quarter basis, profit tumbled by 42.6% from ₹396 crore in the March quarter. The company follows a January-December financial year.

However, consolidated revenue rose 15% to ₹4,468 crore during the quarter under review, compared with ₹3,885 crore in the year-ago period. On a sequential basis, the revenue rose marginally by 0.9% from ₹4,427 crore in the previous quarter.

On the operating profit front, Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) stood at ₹426 crore, lower by 51% as compared to the previous year due to the significant impact of fuel cost increase.

“The April to June 2022 quarter was impacted by rising global fuel costs and related inflationary impacts. We were able to mitigate part of this impact through our efficiency project ‘Parvat’. The cost reduction journey will be further accelerated with commissioning of waste heat recovery projects in Jamul, Kymore & Ametha plants taking the share of green power to 15%,” the company said in its earnings report.

At the end of June quarter, ACC’s cash and cash equivalent stood at ₹4,517 crore.

Commenting on Q2 results, Sridhar Balakrishnan, Managing Director and CEO, says, “Government's concerted efforts to stimulate investment across several sectors will have a favorable impact on improving the overall economic environment in the country. Prediction of a normal monsoon will augur well for the rural economy.”

“We maintain a positive outlook for demand in the coming months,” he adds.

Here’s what analysts said on ACC Q2 results

Post Q2 results, global brokerage CLSA maintains 'underperform' rating on ACC shares with a target price of ₹2,300, saying that clarity on earnings is key for the stock's rerating.

Goldman Sachs has assigned 'neutral' on ACC amid a sharp rise in pet coke and imported coal prices, which impacted the company’s profitability. It has given a target price of ₹2,100 on the counter.

Another brokerage, UBS recommended a 'buy' call on the stock with a target price of ₹2,600. Citi also maintains a 'buy' call on the shares with a target price of Rs ₹2,460, citing that the valuations with upsides from potential synergies make it an attractive bottom-up play.

Domestic brokerage HDFC Securities has maintained a “buy” call on ACC with a lower target price of ₹2,380, saying that the upcoming expansions in the central market will boost its volume growth.