Why ACC Remains Cautious Despite Giving A Growth Forecast
A laborer carries an ACC cement bag from a freight train at the Shakur Basti station in New Delhi, India (Photographer: Prashanth Vishwanathan/Bloomberg)

Why ACC Remains Cautious Despite Giving A Growth Forecast

ACC Ltd. expects the Indian cement industry to rebound from a pandemic-driven slump in 2020 on the back of the government's focus on housing and infrastructure. But rising costs is a concern.

The industry is expected to grow more than 10% over 2020, the cement maker said in its annual report. It expects demand revival to be led by the northern, eastern and central regions. Higher budgetary allocation for highway and road construction, metro rail projects and dedicated freight corridors in 2022 will also provide impetus, it said.

Optimism comes as the economy is recovering from one of the world's harshest Covid-19 lockdowns. Cement demand, it said, fell by around 10-12% a year ago as construction stopped in the second quarter of 2020.

ACC, however, cut back on capital expenditure and utilisation as it expects costs to rise.

Here are excerpts from its annual report.

Cost Pressures

Slag prices hardened in the last six months of 2020 because of reduced availability of dry ash, leading to lower plant load factor and a decline in production during the pandemic, the report said.

A steep increase in pet coke prices prompted the company to reduce power costs and fuels through an optimum blend of domestically sourced and imported coals, besides adopting sustainable and efficient modes of transport, it said. The company cited raw material costs as one of the key risks.

Capacity Utilisation At A Decade Low

The company reported its lowest utilisation level in almost a decade, citing competition because of excess production. ACC is widening its product portfolio by increasing the share of premium, application-based and value-added products, and services to businesses.

Conservative Capex Plan

The company plans to increase capacity by 2.7 million tonnes per annum of clinker and 4.8 MTPA of cement by 2024—a relatively slower pace than before.

ACC, according to a Nirmal Bang report, said during a conference call for the quarter ended December that capex will be commissioned in 18 months, or in 2022. As a result, the brokerage said, the company is likely to report average volume growth lower than the industry during 2021-23.

Cash Balance At A Decade High

The company has a healthy balance sheet with cash on books at more than a decade-high level. ACC generated additional cash and cash equivalents worth Rs 1,352 crore in 2020—a 31% year-on-year rise. The improvement was driven by health, cost and cash action plan, improved collections and renegotiation of payment terms with suppliers.

ACC’s working capital management, the report said, has been robust and involves a well-organised process, which facilitates continuous monitoring and control over receivables, inventories and other parameters.

  • Trade receivables fell 28.1% year-on-year to Rs 450 crore in 2020, resulting in debtor days falling to 12 days compared to 15 in 2019.
  • Inventories reduced by 21.1% over a year ago to Rs 900 crore in 2020. Inventory days, as a result, fell to 24 from 27 a year ago.

Cost Cuts

The company plans to cut costs, improve efficiency and price realisation. It aims to reduce actual cost of cement by approximately Rs 110 a tonne, saving more than Rs 250 crore.

The company aims to maximise operating profit for which it has launched a supply chain project in partnership with Blue Yonder, an end-to-end, digital supply chain platform provider.

Also read: India’s Cement Stocks On The Cusp Of A New Cycle, Says Morgan Stanley

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