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ACC Limited Underweight
ACC.BO, ACC IN
Interesting comments at AGM on market share,
merger with ACEM
• ‘No plans for merger with ACEM as of now’: There has been constant
media (DNA) speculation of an impending merger between ACC and
ACEM. Holcim, the parent company, has been buying from the open
market in both these entities at varying points of time over the last year.
However, at the recent AGM (Annual General Meeting), ACC CEO Mr
Kuldip Kaura has been quoted by media reports (Businessline, ET),
that there are no merger plans with ACEM as of now. While the
comments in themselves would likely not end speculation of a merger
between ACC and ACEM (as some would highlight that the comment
only alludes to ‘now’ and things may change some months down the
line), we would highlight, that the above statement is the first public one
from either the company and that too by an individual of the level of a
CEO. ACC and ACEM have been trading at a significant premium to
peer group and on replacement costs primarily on expectations of a
merger which could potentially force parent Holcim to increase its stake
via open market purchases. ACC is trading at $150/MT.
• Plans to increase market share from 10.2% to 11%: In another
interesting comment, the CEO indicated that ACC plans to increase
market share from 10.2% last year to 11% this year. ACC recently
increased capacity to 30MT. We find the market share comment very
interesting given the ‘supply discipline’ that has been seen in the
market. FY11 saw JPA (N) increase market share sharply. Given our
expectations of a tepid industry growth in FY12E (we expect 7% growth
with domestic demand likely 218MT in FY12E), we believe that if both
ACC and JPA were to achieve their market share/growth targets,
the rest of the industry would need to cede market share (even as
they sit on excess capacity). A market share increase from 10.2% to
11% would imply that ACC’s dispatches increase by 16% in FY12E,
essentially at 2x the industry demand growth rate. Admittedly, ACC
reported a 10% increase in sales volumes in Q1CY11, however
achieving 11% market share for the full year, in our view, could
potentially lead to cement price pressure in markets like Central and
Eastern India.
• Earnings season- Cost pressure to be felt for the full quarter, while
price increase benefits for only half the quarter: While cement
companies have taken price increases more than the increase in costs, the
price increases came through only from Feb, while imported coal costs
were from Jan (though linkage coal price increases came in Feb). We
maintain our view that the long trade in cement is over given cement
price cuts that have started recently.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC Limited Underweight
ACC.BO, ACC IN
Interesting comments at AGM on market share,
merger with ACEM
• ‘No plans for merger with ACEM as of now’: There has been constant
media (DNA) speculation of an impending merger between ACC and
ACEM. Holcim, the parent company, has been buying from the open
market in both these entities at varying points of time over the last year.
However, at the recent AGM (Annual General Meeting), ACC CEO Mr
Kuldip Kaura has been quoted by media reports (Businessline, ET),
that there are no merger plans with ACEM as of now. While the
comments in themselves would likely not end speculation of a merger
between ACC and ACEM (as some would highlight that the comment
only alludes to ‘now’ and things may change some months down the
line), we would highlight, that the above statement is the first public one
from either the company and that too by an individual of the level of a
CEO. ACC and ACEM have been trading at a significant premium to
peer group and on replacement costs primarily on expectations of a
merger which could potentially force parent Holcim to increase its stake
via open market purchases. ACC is trading at $150/MT.
• Plans to increase market share from 10.2% to 11%: In another
interesting comment, the CEO indicated that ACC plans to increase
market share from 10.2% last year to 11% this year. ACC recently
increased capacity to 30MT. We find the market share comment very
interesting given the ‘supply discipline’ that has been seen in the
market. FY11 saw JPA (N) increase market share sharply. Given our
expectations of a tepid industry growth in FY12E (we expect 7% growth
with domestic demand likely 218MT in FY12E), we believe that if both
ACC and JPA were to achieve their market share/growth targets,
the rest of the industry would need to cede market share (even as
they sit on excess capacity). A market share increase from 10.2% to
11% would imply that ACC’s dispatches increase by 16% in FY12E,
essentially at 2x the industry demand growth rate. Admittedly, ACC
reported a 10% increase in sales volumes in Q1CY11, however
achieving 11% market share for the full year, in our view, could
potentially lead to cement price pressure in markets like Central and
Eastern India.
• Earnings season- Cost pressure to be felt for the full quarter, while
price increase benefits for only half the quarter: While cement
companies have taken price increases more than the increase in costs, the
price increases came through only from Feb, while imported coal costs
were from Jan (though linkage coal price increases came in Feb). We
maintain our view that the long trade in cement is over given cement
price cuts that have started recently.
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