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ACC's 52.2% EBITDA drop in Q4FY11 has been worse than our 10% drop expectations. The
weakness in prices in Eastern and Northern markets were responsible for the 2.9% drop in yoy
realisations. ACC's financial position remains strong, but given its valuations and earnings
outlook, we maintain Sell.
EBITDA disappoints due to higher fuel and freight costs
ACC reported 4Q10 EBITDA at Rs2.05bn compared to our expectation of Rs3.9bn. It
declined 52% yoy with EBITDA/mt at Rs365/mt (vs Rs801/mt in 4Q09), which is only
marginally better than Rs342/mt in 3Q10. The sharp decline was mainly due to escalation in
power & fuel cost (up to Rs810/mt v/s Rs741/mt in Q4FY10 and from Rs754/mt in Q3FY11)
and freight costs (up to Rs637/mt in Q4FY11 v/s Rs575/mt in Q4FY10 and Rs465/mt in
Q3FY11). The net sales stood at Rs20.92bn, up 2.1% yoy, driven by 4.7% volume growth
partially negated by 2.9% drop in realizations. The sales realization was up 2.7% qoq. The
management stated that the cement prices improved mainly in South India but its key markets
(East and North regions) saw pricing pressure. 4Q10 reported PAT at Rs.2.46bn was better
than our expectation of Rs.2.25bn, mainly due to a tax credit of Rs.820mn.
ACC's cash generation and balance sheet remains impressive
ACC generated free cash flow of Rs9.85bn in FY11. Loan repayment was Rs430mn, while
capital expenditure was Rs3.81bn for the year. It has increased its liquid assets by Rs5.63bn
in FY11, and currently has liquid assets of Rs24.9bn. The company commissioned brown field
capacity of 4.6MTPA (12,500tpd) in Wadi plant and a captive power plant of 25MW. It also
added 3MT per annum cement capacity through new clinkering line at Chanda unit,
Maharashtra. Post these expansions, the total capacity of the company stands at 30MTPA.
We remain cautious, due our view on cement pricing
Despite the upward momentum in cement prices towards the end of 4Q10 and in January
2011, we believe that inherent risks still exist in pricing. With industry currently operating at
75% utilisation level, we expect cement prices to remain volatile. Besides, we believe that
rising costs could put further pressure on margins. ACC valuations at $124 EV/mt is
reasonable, the sharp fall in EBITDA/mt in the last 2 quarters, will lead to earnings
downgrades, making the stock expensive on earnings multiples.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC's 52.2% EBITDA drop in Q4FY11 has been worse than our 10% drop expectations. The
weakness in prices in Eastern and Northern markets were responsible for the 2.9% drop in yoy
realisations. ACC's financial position remains strong, but given its valuations and earnings
outlook, we maintain Sell.
EBITDA disappoints due to higher fuel and freight costs
ACC reported 4Q10 EBITDA at Rs2.05bn compared to our expectation of Rs3.9bn. It
declined 52% yoy with EBITDA/mt at Rs365/mt (vs Rs801/mt in 4Q09), which is only
marginally better than Rs342/mt in 3Q10. The sharp decline was mainly due to escalation in
power & fuel cost (up to Rs810/mt v/s Rs741/mt in Q4FY10 and from Rs754/mt in Q3FY11)
and freight costs (up to Rs637/mt in Q4FY11 v/s Rs575/mt in Q4FY10 and Rs465/mt in
Q3FY11). The net sales stood at Rs20.92bn, up 2.1% yoy, driven by 4.7% volume growth
partially negated by 2.9% drop in realizations. The sales realization was up 2.7% qoq. The
management stated that the cement prices improved mainly in South India but its key markets
(East and North regions) saw pricing pressure. 4Q10 reported PAT at Rs.2.46bn was better
than our expectation of Rs.2.25bn, mainly due to a tax credit of Rs.820mn.
ACC's cash generation and balance sheet remains impressive
ACC generated free cash flow of Rs9.85bn in FY11. Loan repayment was Rs430mn, while
capital expenditure was Rs3.81bn for the year. It has increased its liquid assets by Rs5.63bn
in FY11, and currently has liquid assets of Rs24.9bn. The company commissioned brown field
capacity of 4.6MTPA (12,500tpd) in Wadi plant and a captive power plant of 25MW. It also
added 3MT per annum cement capacity through new clinkering line at Chanda unit,
Maharashtra. Post these expansions, the total capacity of the company stands at 30MTPA.
We remain cautious, due our view on cement pricing
Despite the upward momentum in cement prices towards the end of 4Q10 and in January
2011, we believe that inherent risks still exist in pricing. With industry currently operating at
75% utilisation level, we expect cement prices to remain volatile. Besides, we believe that
rising costs could put further pressure on margins. ACC valuations at $124 EV/mt is
reasonable, the sharp fall in EBITDA/mt in the last 2 quarters, will lead to earnings
downgrades, making the stock expensive on earnings multiples.
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