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ACC's financial position remains impressive (cash per share of Rs105), but we believe near-term
earnings will be volatile due to oversupply in the industry. Valuations do not look cheap at 19.5x
FY11F PE and 10.9x EV/EBITDA - we maintain our Sell rating but raise our target price to
Rs832.76.
One-offs partly responsible for sharp fall in EBITDA/mt in last two quarters
ACC has averaged EBITDA/mt of Rs353 for the last two quarters versus its Rs1,115 average for
the preceding six quarters. We believe about 50% of this margin decline is due to lower average
realisations, with the balance due to higher operating costs. During the last two quarters
management has booked some extraordinary costs as ‘other expenditures’ under revised criteria
for identifying obsolete spare parts. On our numbers, this raised 4QFY10 cost/mt by around
Rs70. We expect EBITDA/mt of Rs693 for FY11 and Rs715 for FY12.
ACC’s financial position remains impressive
In FY10, ACC increased the net cash on its balance sheet by Rs5.88bn despite capex of
Rs7.26bn. Management has indicated that no major capex is confirmed for FY11 beyond the
completion of ongoing expansion projects at Wadi, Karnataka and Chanda, Maharashtra. The
company currently has capacity of 30mmt versus its FY10 cement sales of 21.29mmt.
We adjust our earnings and maintain our Sell rating
We adjust our FY11-12F earnings to reflect the weaker-than-expected 4QFY10 performance, but
raise our DCF-based target price to Rs832.76 (from Rs730.93) to reflect better-than-expected
cash generation and capex plans for FY11 and beyond. India’s cement industry is operating at
75% capacity utilization, and we believe that the recent up-tick in cement prices is largely due to
production discipline in some markets. Hence, we see downside risk to cement prices during the
next 12-18 months, but remain positive on the long-term outlook for India’s cement sector. Over
the next two years we expect EBITDA/mt to remain around Rs700 and estimate an EPS CAGR of
only 1.6%. We maintain our Sell recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC's financial position remains impressive (cash per share of Rs105), but we believe near-term
earnings will be volatile due to oversupply in the industry. Valuations do not look cheap at 19.5x
FY11F PE and 10.9x EV/EBITDA - we maintain our Sell rating but raise our target price to
Rs832.76.
One-offs partly responsible for sharp fall in EBITDA/mt in last two quarters
ACC has averaged EBITDA/mt of Rs353 for the last two quarters versus its Rs1,115 average for
the preceding six quarters. We believe about 50% of this margin decline is due to lower average
realisations, with the balance due to higher operating costs. During the last two quarters
management has booked some extraordinary costs as ‘other expenditures’ under revised criteria
for identifying obsolete spare parts. On our numbers, this raised 4QFY10 cost/mt by around
Rs70. We expect EBITDA/mt of Rs693 for FY11 and Rs715 for FY12.
ACC’s financial position remains impressive
In FY10, ACC increased the net cash on its balance sheet by Rs5.88bn despite capex of
Rs7.26bn. Management has indicated that no major capex is confirmed for FY11 beyond the
completion of ongoing expansion projects at Wadi, Karnataka and Chanda, Maharashtra. The
company currently has capacity of 30mmt versus its FY10 cement sales of 21.29mmt.
We adjust our earnings and maintain our Sell rating
We adjust our FY11-12F earnings to reflect the weaker-than-expected 4QFY10 performance, but
raise our DCF-based target price to Rs832.76 (from Rs730.93) to reflect better-than-expected
cash generation and capex plans for FY11 and beyond. India’s cement industry is operating at
75% capacity utilization, and we believe that the recent up-tick in cement prices is largely due to
production discipline in some markets. Hence, we see downside risk to cement prices during the
next 12-18 months, but remain positive on the long-term outlook for India’s cement sector. Over
the next two years we expect EBITDA/mt to remain around Rs700 and estimate an EPS CAGR of
only 1.6%. We maintain our Sell recommendation.
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