ACC - Annual Report 2020

ECONOMIC SCENARIO AND OUTLOOK

India’s economic growth fell from 6.5% in fiscal 2018-19 to 4.0% in fiscal 2019-20, reflecting an 11-year low. Due to the impact of COVID-19, the Gross Domestic Product (‘GDP’) is expected to contract by 7.7% in fiscal 2020-21, as per the first advance estimates released by the National Statistical Office. While the full impact of the COVID-19 lockdown was felt in the April-June quarter, the worst may have been avoided with a faster than expected recovery of the manufacturing sector in the July-September quarter, and a revival of consumer demand sentiment during the festive season.

“The outlook for fiscal 2021-22 is firmly positive with an estimated GDP growth of around 11%. The Union Budget 2021 focuses on continued spending to stimulate growth as the economy tries to recover from the impact of COVID-19.”

4%

Economic growth in 2019-20

CEMENT INDUSTRY – OUTLOOK AND OPPORTUNITIES

India is the world’s second largest cement producer with a cumulative production capacity of 540 Million tonnes per annum (‘MTPA’) in 2020. The pandemic led to a slowdown and delay in capacity expansion projects.

Cement demand fell by an estimated 10-12% YoY in 2020 owing to the COVID-19 outbreak. Lockdown-led demand disruption was the highest in the second quarter of 2020 on the back of suspension of production, stalled construction activities and mass exodus of labour.

However, starting early June, pent-up and pre-monsoon construction requirement cushioned demand de-growth to a large extent. Rural demand continues to be the silver lining for cement consumption while that from the infrastructure sector was in a slower lane. Infrastructure demand witnessed gradual pickup from September onwards on the back of improving government spending, coupled with gradual normalisation in labour availability

11%

Estimated GDP growth for 2021-22

SALES VOLUME

In 2020, the Company’s cement sales de-grew by 11.6% from 28.89 Million tonnes in 2019 to 25.53 Million tonnes. Overall, the industry witnessed de-growth of ~10-12% due to the COVID-19 pandemic. However, in the second half of 2020, the industry showed signs of early recovery. In the retail segment, individual home builders and ground plus three storey (G+3) buildings continue to remain the Company’s largest customer segment in terms of volume and profitability. With growing urbanisation and rural empowerment, the demand from these sectors is expected to accelerate.

DETAILS OF SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

Key financial ratios of the Company showing its financial performance are as under

MARKET DEVELOPMENT

ACC is the first and among the largest producers of cement in the country. For over eight (8) decades, the Company has been playing an active role in the progress and development of the country and has enjoyed a loyal customer base. The Company also has a strong pan-India channel network of 12,000 dealers and 56,000 channel partners, which is servicing the nation’s requirement of high-quality cement and building materials. This strong network has been instrumental in driving over 79% of the cement sales in the retail segment for 2020

Strong distribution network

Over the years, the Company’s Sales and Marketing teams have developed a deep understanding of customer preferences and requirements. This enables ACC to maximise the utilisation of its existing capacity on ‘product value-based volume strategy’.

12,000

Dealers

56,000

Channel partners

CEMENT BUSINESS – PERFORMANCE

Costs – Cement business

During 2020, the Company undertook various initiatives towards effective cost management

CAPACITY EXPANSION

To effectively manage the Company’s manufactured capital, ACC regularly undertakes both capacity augmentation projects and engages efficiency capex initiatives. Starting 2021, ACC has added 1.4 MTPA to the existing 3.0 MTPA unit, taking the total capacity at Sindri, Jharkhand to 4.4 MTPA. The Company has commenced cement production in a record time, setting a new benchmark at ACC with meticulous planning and collaborative approach even in these unprecedented times.

With cement demand projected to increase in India, development capex projects are being kickstarted to increase clinker and cement capacities at ACC in the attractive and profitable Central region of India. This ensures that ACC has ample capacity to cater to a rising demand scenario.

In this regard, the Company has undertaken to increase capacity by 2.7 MT of clinker and 4.8 MTPA of cement by 2024 in the following manner:

4.4 MTPA

Sindri plant’s total capacity in 2021

READY MIX CONCRETE BUSINESS

Commendable show of organisational resilience and mettle

The year 2020 has been extremely challenging for the Ready Mix Concrete business, since many key markets (including the metros) remained severely affected due to COVID-19. Enforced lockdowns brought construction activities to a complete standstill and issues of labour migration made the situation worse for Q2 & Q3 of the Financial Year 2020 for the Ready Mix Concrete business.

In order to mitigate the impact of the situation, an action plan focused on ‘Health, Cost and Cash’ was devised.

It is in such extraordinary situations that an organisation’s capabilities, resilience and mettle are tested. In these difficult times, the Ready Mix Concrete team managed to sail through. Be it in crisis management, ensuring the well-being of all employees and workers, implementation of stringent standards of procedure for plant resumptions, maintaining social distancing or management of the receivables during lockdowns, the Ready Mix Concrete team’s performance was commendable.

DISCUSSIONS ON FINANCIAL PERFORMANCE VIS-À-VIS OPERATIONAL PERFORMANCE

For details on financial performance vis à vis operational performance:

Please refer to the Board’s Report 94

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

For details on Internal Control Systems and their Adequacy.

Please refer to the Board’s Report 94

SUSTAINABLE DEVELOPMENT

Since inception, ACC has been working towards achieving sustainability across its operations. During the year, the Company’s efforts continued with the same rigour. It conducted its business maintaining high standards of governance, respecting nature and demonstrating social responsiveness towards its communities. Due to the growing awareness among stakeholders and their ever-increasing expectations from businesses, ACC has enhanced its focus on the key material issues, i.e. CO2 emissions and circular economy.

A. Climate & Energy

During 2020, ACC reduced its specific CO2 emissions to 493 kg/t of cementitious materials in comparison to 512 kg/t of cementitious material in 2019. While some of the levers affecting the CO2 emissions, such as clinker factor, Thermal Substitution Rate (‘TSR’) and specific thermal energy have improved over last...

493kg

CO₂ emissions per tonne of cementitious material

CORPORATE SOCIAL RESPONSIBILITY INITIATIVES

ACC structured its social development interventions through ACC TRUST in alignment with United Nations Sustainable Development Goals (UN SDGs). Community development interventions undertaken in previous years continued with vigour with a widening portfolio of projects. During the reporting year, the focus was on malnutrition mitigation, water conservation and combating the COVID-19 pandemic in addition to regular broad thematic areas

`32.33 Crore

2020 Corporate Social Responsibility expenditure

The Company’s total CSR expenditure during the year was to the tune of `32.33 Crore. This was 2.05% of the average net profit of the last three years. The Company’s CSR projects primarily focused on the following broad thematic areas: Sustainable Livelihood, Quality of Education and Water, Sanitation, Health & Hygiene (‘WASH’), which pertained to Schedule VII of the Companies Act, 2013 and are aligned to the UN SDGs.

8.30 Lakh

Lives touched

HEALTH AND SAFETY (‘H&S’)

The ‘More Boots on Ground’ initiative of the Company has continued to be an integral part of the H&S governance and assurance system. This has reinforced focus on the ground level and leadership engagement through interaction with frontline workers. This initiative has now become a way of life at ACC and its implementation has improved safety performance in the Company.

7,87,233

Total Boots on Ground hours in 2020

Moreover, engagement on the shop floor has increased, which has built the confidence of employees on the ground and line managers, who are spending more time on field. This has helped the Company improve the Field Level Risk Assessment (‘FLRA’), resulting in safe completion of jobs. Boots on Ground (‘BOG’) hour count has improved and become part of the daily routine at ACC. In 2019, the total BOG hours was 1,54,598 hours as against 7,87,233 hours in 2020.

BUSINESS RISKS AND OPPORTUNITIES

The Company’s governance structure has well-defined roles and responsibilities, which enable and empower the management to identify, assess and leverage business opportunities and manage risks effectively. There is also a comprehensive framework for strategic planning, implementation and performance monitoring of the business plan, which, inter alia, includes a well-structured Business Risk Management (‘BRM’) process. To systematically identify risks and opportunities and monitor their movement, a heat map has been designed comprising two parameters: a) likelihood of the event and b) the impact it is expected to have on the Company’s operations and performance.

The risks that fall under the purview of high likelihood and high impact are identified as key risks. This structured process in identifying risks supports the Executive Committee in strategic decision-making and in the development of detailed mitigation plans. The identified risks are then integrated into the Company’s planning cycle, which is a rolling process to, inter alia, periodically review the movement of the risks on the heat map and the effectiveness of the mitigation plan. The key business risks and their mitigation plans are described herein:

Management Discussion and Analysis

4%

11%

12,000

56,000

4.4 MTPA

493kg

`32.33 Crore

8.30 Lakh

7,87,233

Management Discussion
and Analysis