ACC (Q1 CY14)

India Infoline News Service | Mumbai |

ACC revenues grew 2.6%yoy to Rs30.3bn; below our estimate on the back of lower cement dispatches, which remain flat against our expectation of a ~4%yoy jump.

CMP Rs1,348, Target Rs1,173, Downside 13.0% 
  • Subdued demand in southern region led to flat volumes and realization

  • OPM stood at 14%; meets estimate on back of saving in power cost

  • PBT stood at Rs3.8bn (down 13%yoy), higher than our estimate; tax write back translates into PAT (at 3.97bn)

  • Downgrade to SELL with a revised 9-month price target of Rs1,173

Result table
(Rs mn) Q1 CY14 Q1 CY13 % yoy Q4 CY13 % qoq
Net sales 30,269 29,509 2.6 27,925 8.4
Material costs 5,391 4,076 32.3 4,679 15.2
Personnel costs 1,694 1,616 4.8 1,560 8.6
Power and fuel costs 6,098 6,483 (5.9) 5,842 4.4
Freight cost 6,627 6,108 8.5 6,092 8.8
Other overheads 6,209 6,311 (1.6) 6,136 1.2
Operating profit 4,251 4,916 (13.5) 3,618 17.5
OPM (%) 14.0 16.7 (262 bps) 13.0 109 bps
Depreciation (1,390) (1,406) (1.2) (1,550) (10.3)
Interest (108) (108) 0.1 (120) (9.5)
Other income 1,079 1,020 5.8 425 154.1
PBT 3,832 4,421 (13.3) 2,372 61.5
Tax 136 (75) (280.3) 359 (62.1)
Effective tax rate (%) (3.5) 1.7 (308.1) (15.1) (76.5)
Adjusted PAT 3,968 4,346 (8.7) 2,731 45.3
Adj. PAT margin (%) 13.1 14.7 (162 bps) 9.8 333 bps
Extra Ordinary 32 38 (15.5) 27 19.3
Reported PAT 4,000 4,384 (8.8) 2,758 45.0
Source: Company, India Infoline Research

Subdued demand in South translates into flat revenue

ACC revenues grew 2.6%yoy to Rs30.3bn; below our estimate on the back of lower cement dispatches, which remain flat against our expectation of a ~4%yoy jump. Realizations came under pressure (drop of 1%qoq against our expectations of 2%qoq increase) primarily due to drop in cement prices in southern region.


Cost analysis
As a % of net sales Q1 CY14 Q1 CY13 bps yoy Q4 CY13 bps qoq
Material costs 17.8 13.8 400 16.8 106
Personnel Costs 5.6 5.5 12 5.6 1
Power and fuel costs 20.1 22.0 (183) 20.9 (78)
Freight cost 21.9 20.7 120 21.8 8
Other overheads 20.5 21.4 (87) 22.0 (146)
Total costs 86.0 83.3 262 87.0 (109)

Savings in power and other overhead offset lower yield

Operating margins for ACC stood at 14% a contraction of 262bps yoy; marginally better than our estimate of 330bps drop. Power and fuel cost stood at Rs941/ton (lowest level since Q2 CY11 and better than our estimate of Rs998/ton) on back of rupee appreciation and softening international coal prices. Surge in freight cost (Rs1,023/ton as against Rs951/ton previous year and Rs1043/ton sequentially) restricted margin improvement. Other overhead stood at Rs958/ton as against Rs1,051/ton sequentially and Rs983/ton previous year.


Depreciation and interest outgo was flat on yearly basis. PBT stood at Rs3.8bn down 13%yoy; however, tax write back cushioned the impact translating into 8%yoy drop at PAT levels


Trades at 19x PER CY15 earnings; downgrade to SELL

Cement sector is going through tough times as significant slowdown in demand and supply surplus in most regions are impacting realization negatively. Construction activity has slowed down Pan-India, impacting realizations of all major players (barring north-based players as Binani Cement plant shutdown translated into supply crunch, thereby, improving realizations). The sector could possibly see a revival post H1 FY15 on back of resumption of investment cycle, post general election and softening of interest rate 

ACC balance sheet continues to be strong with cash and cash equivalent at Rs26bn and almost zero debt. The on-going Jamul project is currently halfway through; management expects the project to come on stream by H1 CY15. Groundwork at Sindri, Jharkhand is also progressing well. We factor in key industry metrics demand and realization to remain under pressure in near term. ACC has rallied more than 40% in past one quarter. We see no material change in ground reality to justify such sharp rise; even the quarterly results failed to surprise us positively to tweak our earnings estimate higher for CY14 and CY15. We downgrade ACC to SELL with a 9-month price target of Rs1,173.


Financial Summary
Y/e 31 Mar (Rs m) CY12 CY13E CY14E CY15E
Revenues 113,582 111,643 120,529 135,907
Yoy growth (%)   17.6   (1.7)   8.0   12.8
Operating profit 21,966 16,300 19,079 24,076
OPM (%)   19.3   14.6   15.8   17.7
Pre-exceptional PAT 13,953 10,099 11,760 13,327
Reported PAT 17,281 10,099 11,760 13,327
Yoy growth (%)   30.4   (41.6)   16.5   13.3
         
EPS (Rs)   74.2   53.7   62.6   70.9
P/E (x)   18.2   25.1   21.5   19.0
Price/Book (x)   3.4   3.2   3.0   2.8
EV/EBITDA (x)   10.2   14.0   12.0   9.7
Debt/Equity (x)   0.0   -    0.0   0.1
RoE (%)   19.4   13.3   14.6   15.3
RoCE (%)   23.8   15.2   18.1   21.3
Source: Company, India Infoline Research
NSE 1,696.50 8.30 (0.49%)

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