Visit http://indiaer.blogspot.com/ for complete details • Below estimates, but better than reported by others: ACEM reported
Q3CY10 EBITDA at Rs3.02bn (-53% q/q; -35% y/y) v/s JPMe of
Rs3.8bn. Reported PAT of Rs1.5bn (-61% q/q; -52% y/y) v/s JPMe of
Rs2.1bn and consensus estimate of Rs2.2bn. While the results were
below estimates, underlying profitability was significantly better than
that reported by ACC. EBITDA margins stood at 19% while
EBITDA/MT stood at Rs695/MT. Cement sales increased 6% y/y
(benefiting from recent capacity expansion), while realizations declined
7% q/q (v/s -11% for ACC). While raw materials and freight costs
declined q/q, power and fuel costs increased 20% q/q (on a per MT
basis). While ACEM has benefited from an increase in captive clinker
production, we expect coal costs to remain at elevated levels for the
company. ACEM announced that it has eliminated clinker purchases.
• Company does not expect volume impact from ongoing strike in HP:
ACEM highlighted that it does not expect any impact from the strike (by
the local transport union) on its ability to supply the market. The strike
has impacted production and dispatches in the plants in the state of HP.
We expect the situation to be resolved soon.
• Cement price hikes over the last 1-month should aid margin
expansion in Q4; however, industry overcapacity means large price
increases difficult to hold: We estimate for ACEM EBITDA/MT to
increase 52% Q/Q driven by 7.5% price increase and 17% volume
increase q/q. We do not forecast any material cost reductions for the
company/industry. Demand has been soft driven by the rains and lack of
material increase in infrastructure spending. We believe demand
recovery post the festival period of November is key for the recent price
increases to be sustained.
• Maintain UW: We maintain our UW rating and Sept-11 price target of
Rs100 based on $110/MT CY11E EV/MT. Key upside risks include
continued cement price increase and sharp reduction in costs.
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