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
|(Rs mn)||Q1 CY14||Q1 CY13||% yoy||Q4 CY13||% qoq|
|Power and fuel costs||6,098||6,483||(5.9)||5,842||4.4|
|OPM (%)||14.0||16.7||(262 bps)||13.0||109 bps|
|Effective tax rate (%)||(3.5)||1.7||(308.1)||(15.1)||(76.5)|
|Adj. PAT margin (%)||13.1||14.7||(162 bps)||9.8||333 bps|
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.
|As a % of net sales||Q1 CY14||Q1 CY13||bps yoy||Q4 CY13||bps qoq|
|Power and fuel costs||20.1||22.0||(183)||20.9||(78)|
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.
|Y/e 31 Mar (Rs m)||CY12||CY13E||CY14E||CY15E|
|Yoy growth (%)||17.6||(1.7)||8.0||12.8|
|Yoy growth (%)||30.4||(41.6)||16.5||13.3|