ACC (Q2 CY14)

India Infoline News Service | Mumbai |

ACC revenues grew 7%yoy to Rs30bn matching our estimates.

CMP Rs1,432, Target Rs1,277, Downside 10.8% 
  • ACC topline grew 7%; meets our estimates. OPM stood at 14.7%; lower than our estimates on back of higher personnel and other overhead costs.

  • PAT at Rs2.4bn (down 8%yoy) was lower than our estimates; savings in depreciation and interest outgo arrests further slide.

  • Upgrade to Reduce with a revised 9-month price target of Rs1,334 on back of rolling over valuation to CY16 from CY15

Result table
(Rs mn) Q2 CY14 Q2 CY13 % yoy Q1 CY14 % qoq
Net sales 30,595 28,511 7.3 30,269 1.1
Material costs 5,033 4,780 5.3 5,391 (6.6)
Personnel costs 1,936 1,725 12.2 1,694 14.3
Power and fuel costs 6,207 5,916 4.9 6,098 1.8
Freight cost 6,755 5,730 17.9 6,627 1.9
Other overheads 6,158 5,459 12.8 6,209 (0.8)
Operating profit 4,506 4,901 (8.1) 4,251 6.0
OPM (%) 14.7 17.2 (246) bps 14.0 68 bps
Depreciation (1,377) (1,411) (2.4) (1,390) (0.9)
Interest (111) (179) (37.8) (108) 2.7
Other income 371 354 4.6 1,079 (65.7)
PBT 3,388 3,666 (7.6) 3,832 (11.6)
Tax (978) (1,090) (10.3) 136 (820.1)
Effective tax rate (%) 28.9 29.7 (2.9) (3.5) (914.4)
Adjusted PAT 2,410 2,576 (6.4) 3,968 (39.3)
Adj. PAT margin (%) 7.9 9.0 (116) bps 13.1 (523) bps
Extra Ordinary - 43 (100.0) 32 (100.0)
Reported PAT 2,410 2,619 (8.0) 4,000 (39.7)
Source: Company, India Infoline Research

Price improvement in South translates into 7% yoy revenue jump 

ACC revenues grew 7%yoy to Rs30bn matching our estimates. Realizations improved (up 4%qoq against our expectations of 3%qoq increase) primarily due to increase in cement prices in southern region. Dispatch volumes meet estimates at 6.35mtpa for the quarter.

Savings in power and other overhead offset lower yield

Operating margins for ACC stood at 14.7% a contraction of 246bps yoy; lower than our estimate of 90bps drop. Personnel cost stood at Rs305/ton (at 4 quarter high). Surge in freight cost (Rs1,064/ton as against Rs1,043/ton previous year and Rs1023/ton sequentially) on railway freight increase. Other overhead cost stood at Rs970/ton as against Rs892/ton sequentially.

Depreciation and interest outgo was lower on yearly basis. PAT stood at Rs2.4bn down 6%yoy.


Cost analysis
As a % of net sales Q2 CY14 Q2 CY13 % yoy Q1 CY14 % qoq
Material costs 16.4 16.8 (31) 17.8 (136)
Personnel Costs 6.3 6.1 28 5.6 73
Power and fuel costs 20.3 20.8 (46) 20.1 14
Freight cost 22.1 20.1 198 21.9 19
Other overheads 20.1 19.1 98 20.5 (38)
Total costs 85.3 82.8 246 86.0 (68)

Trades at 20x PER CY15 earnings; downgrade to SELL

Cement prices did see an uptick in southern region boosting realization for ACC during the current quarter. However, we see a limited scope of realization staying at current levels in Southern region in the next few quarters.

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. ACC has rallied more than 45% in first half of the year. We see lot of positive being already build up in the stock with not much of a change in ground reality; even the quarterly results have failed to surprise us positively. We maintain our SELL rating on ACC but increase our 9-month PT to Rs1,277 from Rs1,173 on back of rolling over valuation to CY16 from CY15.


Financial Summary
Y/e 31 Mar (Rs m) CY13 CY14E CY15E CY16E
Revenues 111,643 123,967 142,726 159,447
Yoy growth (%)   (1.7)   11.0   15.1   11.7
Operating profit 16,300 18,589 24,360 29,192
OPM (%)   14.6   15.0   17.1   18.3
Pre-exceptional PAT 10,099 11,385 13,606 16,732
Reported PAT 10,099 11,385 13,606 16,732
Yoy growth (%)   (41.6)   12.7   19.5   23.0
         
EPS (Rs)   53.7   60.6   72.4   89.0
P/E (x)   26.6   23.6   19.8   16.1
Price/Book (x)   3.4   3.2   3.0   2.7
EV/EBITDA (x)   14.9   13.2   10.2   8.6
Debt/Equity (x)   -    0.0   0.1   0.1
RoE (%)   13.3   14.1   15.7   17.6
RoCE (%)   15.2   17.4   21.8   23.2
Source: Company, India Infoline Research
NSE 1,732.80 [14.15] ([0.81]%)

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