Angel Broking: ACC - 3QCY2010 Result Update

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For 3QCY2010, ACC reported a 77.0% yoy decline in net profit because of the
substantial fall in realisations coupled with higher operating expenses.
Going ahead, we expect the company’s despatches and realisations to improve
on account of better demand outlook and the recent price hikes. At current levels,
the stock is trading at an EV/EBITDA of 9.3x and EV/tonne of US $115 based on
CY2011E numbers. We maintain our Neutral view on the stock.
Net profit down 77% yoy: ACC’s 3QCY2010 standalone net sales declined by
16.9% yoy, in line with our estimates. The decline can be attributed to the 3.7% fall in
despatches to 4.83mn tonnes coupled with a 13.8% yoy fall in realisations to
`3,390/tonne. Despatches declined due to severe monsoons and floods in various
parts of the country. The volume of cement despatches was also partially affected due
to the shutdown of Wadi-II for kiln expansion, which lasted for most of the quarter.
During 3QCY2010, ACC’s margins fell by a huge 2,223bp yoy to 14% (36%) on
account of the fall in realisation and increase in slag, fly ash and power costs. Further,
the company’s substantial presence in the southern region dented its realisation, as
the price hikes carried out in September did not have much impact on overall
quarterly realisations. Net profit declined by 77.0% yoy to `100cr, primarily due to a
62.8% decline in operating profits and higher depreciation and interest costs.
Outlook and valuation: We expect ACC to register a 2.0% CAGR in its top line
over CY2009–11E, aided by capacity addition. We also expect the company’s
operating and net profit to witness decline at a 15.9% and 22.8% CAGR,
respectively, over CY2009–11E. At current levels, the stock is trading at an
EV/EBITDA of 9.3x and EV/tonne of US $115 based on CY2011E numbers. We
maintain our Neutral view on the stock.