ET reported that ACC consolidated operating profit margin improved by 370 basis points to 28%YoY in the September 2009 quarter helped by improved realizations and lower operational costs. Despatches grew 2.8%YoY to 5.06 million tonnes in the Q2 of FY10 while its realizations improved by an estimated 6.9%YoY to INR 3,892 per tonne.
The company national presence helped it easily offset the broadly sluggish cement prices in the south. Apart from higher prices, the company also benefited from a fall in its key operational costs such as power and fuel, which declined nearly 15.6%YoY to INR 755 per tonne in the Q2 of FY 2010.
Coal prices have cooled off in the quarter on a YoY basis and most players in the cement sector had also benefited from this. The improved performance helped ACC net profit rise nearly 60%YoY to INR 415.5 crore in the September 2009 quarter.
In contrast, Ambuja Cements operating profit margin declined 50 basis points to 28.1%YoY in the Q2 and that’s despite 10.3%YoY improvement in its realizations. The company operating margin came under pressure from higher raw material costs as percentage of net sales which rose by 620 basis points to 15.3% of net sales.
Among raw materials the company had reported a big jump in clinker purchased in the Q2 and it faced a similar rise in this input costs in the June 2009 quarter also. However, both ACC and Ambuja Cements have underperformed the Sensex over the past six months. ACC trades at a P/E of 8.6 times trailing four quarters and we are neutral on the stock.
In the case of Ambuja Cements, it gets a P/E of nearly 11 times and looks expensive. Investors have been concerned at the rapid ramp-up in cement capacity over the next few years and demand possibly lagging behind. The cement industry capacity at the end of FY 2009 was 218 million tonnes with utilization levels of 88%.
