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UBS Investment Research
ACC Limited
Weak operating performance
Results well below UBS and consensus estimates
ACC reported Q4CY10 recurring PAT (consolidated) of Rs1.2bn (-52% y/y, +
41% q/q) below UBS-e of Rs2.2bn and consensus estimate of Rs2.5bn. Reported
PAT is higher at Rs2.5bn, due to exceptional items of about Rs1.3bn. Operating
income declined 53% y/y to Rs2bn (UBS-e 3.7bn, consensus estimate of Rs4.4bn)
mainly on account of lower realisations and rise in staff and raw material costs. Net
sales increased 2% y/y to 20.9bn (+19% q/q).
Cement realisations decline marginally QoQ
Cement realisation declined ~1% q/q in Q4 to Rs3,372/T (-6% y/y) and was down
2% y/y in CY10 to Rs3,594/T. Cement volumes grew 5% y/y in Q4 while for
CY10 volumes declined 1% y/y. ACC expects the 3mt Chanda expansion project,
that had commenced trial operations in Nov-If required please10, to ramp-up
progressively in H1CY11.
Significant rise in freight costs quarter on quarter
Per ton freight costs have increased 37% q/q to Rs638/T compared to Rs466/T in
Q3. Per ton staff and power/fuel costs have also increased by about 7% q/q. Along
with lower realizations, this has put pressure on margins - EBITDA margin at 9.8%
is only slightly better than 9.4% in Q3 (UBS-e of 17.9%, consensus estimate of
20.4%). EBITDA margin for CY10 has declined to 18.7% from 29% in CY09.
Valuation: maintain Sell rating
We value ACC at a one-year forward EV/EBITDA of 6.5x. We are cautious on the
near-term outlook for the cement sector in India and maintain our Sell rating.
ACC Limited
ACC is primarily engaged in manufacturing cement and ready-mixed concrete.
It is India's second largest cement manufacturer with 26mt capacity. Most of its
capacity is in south, north and east India. In addition to the core business, the
company has interests in manufacturing refractory material, and providing
research and consultancy services on the cement business. The Holcim group
holds the controlling stake in ACC. Holcim had 48mt capacity in India in 2009
via ACC and Ambuja Cement, in which it has a majority stake.
Statement of Risk
We believe the principal risk to cement companies earning estimates arises from
fall in cement prices and rise in raw material prices.
India Equity Research Reports, IPO and Stock News
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UBS Investment Research
ACC Limited
Weak operating performance
Results well below UBS and consensus estimates
ACC reported Q4CY10 recurring PAT (consolidated) of Rs1.2bn (-52% y/y, +
41% q/q) below UBS-e of Rs2.2bn and consensus estimate of Rs2.5bn. Reported
PAT is higher at Rs2.5bn, due to exceptional items of about Rs1.3bn. Operating
income declined 53% y/y to Rs2bn (UBS-e 3.7bn, consensus estimate of Rs4.4bn)
mainly on account of lower realisations and rise in staff and raw material costs. Net
sales increased 2% y/y to 20.9bn (+19% q/q).
Cement realisations decline marginally QoQ
Cement realisation declined ~1% q/q in Q4 to Rs3,372/T (-6% y/y) and was down
2% y/y in CY10 to Rs3,594/T. Cement volumes grew 5% y/y in Q4 while for
CY10 volumes declined 1% y/y. ACC expects the 3mt Chanda expansion project,
that had commenced trial operations in Nov-If required please10, to ramp-up
progressively in H1CY11.
Significant rise in freight costs quarter on quarter
Per ton freight costs have increased 37% q/q to Rs638/T compared to Rs466/T in
Q3. Per ton staff and power/fuel costs have also increased by about 7% q/q. Along
with lower realizations, this has put pressure on margins - EBITDA margin at 9.8%
is only slightly better than 9.4% in Q3 (UBS-e of 17.9%, consensus estimate of
20.4%). EBITDA margin for CY10 has declined to 18.7% from 29% in CY09.
Valuation: maintain Sell rating
We value ACC at a one-year forward EV/EBITDA of 6.5x. We are cautious on the
near-term outlook for the cement sector in India and maintain our Sell rating.
ACC Limited
ACC is primarily engaged in manufacturing cement and ready-mixed concrete.
It is India's second largest cement manufacturer with 26mt capacity. Most of its
capacity is in south, north and east India. In addition to the core business, the
company has interests in manufacturing refractory material, and providing
research and consultancy services on the cement business. The Holcim group
holds the controlling stake in ACC. Holcim had 48mt capacity in India in 2009
via ACC and Ambuja Cement, in which it has a majority stake.
Statement of Risk
We believe the principal risk to cement companies earning estimates arises from
fall in cement prices and rise in raw material prices.
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