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Positives priced in – downgrade to HOLD
ACC has outperformed the broader market by 28% over the past nine months. While
Q1CY11 should be stronger led by margin expansion, we believe the current run-up in
stock price already factors in most positives. At 7.9x EV/EBITDA one-year forward
and US$ 140 EV/t (vs. US$ 120 replacement cost), we see limited upside potential and
therefore downgrade the stock to HOLD. In our view, near-term headwinds in terms
of a decline in cement prices could provide investors with better entry points into large
cap stocks.
v Cement prices start to correct: Recent dealer checks suggest that prices have
started to correct in most parts of India (except the south), by ~Rs 5–10/bag. This
follows a sharp price increase of Rs 25–60/bag across regions over the last 2–3
months. We believe prices could taper down further as we move towards seasonal
weakness and this might weigh on stock sentiment.
v No plans to merge with Ambuja: In its recent AGM, the management ruled out a
merger of Ambuja Cement but pointed to acquisition and inorganic growth
opportunities in the near future. Signalling its conviction in the strength of the base
business, the promoter Holcim also recently increased its stake in the company to
49.3% from 46.2%.
v Expect strong Q1CY11 sequentially: After two soft quarters, we expect ACC to
report strong topline growth of 13.5% in Q1CY11 led by robust dispatch growth of
10–12% YoY (albeit over a low base) and modest realisation growth. We expect
realisations to increase 9% QoQ, which will drive margins sequentially up by 840bps
and EBITDA/t up by Rs 350–400.
v Valuations full; downgrade to HOLD: The stock has outperformed the Sensex by
28% over the past nine months. Valuations hold limited upside, with ACC trading
close to 8x EV/EBITDA one-year forward. We maintain our CY11/CY12 earnings
estimates and believe that investors will have better opportunities to enter into large
caps on seasonal corrections in stock prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Positives priced in – downgrade to HOLD
ACC has outperformed the broader market by 28% over the past nine months. While
Q1CY11 should be stronger led by margin expansion, we believe the current run-up in
stock price already factors in most positives. At 7.9x EV/EBITDA one-year forward
and US$ 140 EV/t (vs. US$ 120 replacement cost), we see limited upside potential and
therefore downgrade the stock to HOLD. In our view, near-term headwinds in terms
of a decline in cement prices could provide investors with better entry points into large
cap stocks.
v Cement prices start to correct: Recent dealer checks suggest that prices have
started to correct in most parts of India (except the south), by ~Rs 5–10/bag. This
follows a sharp price increase of Rs 25–60/bag across regions over the last 2–3
months. We believe prices could taper down further as we move towards seasonal
weakness and this might weigh on stock sentiment.
v No plans to merge with Ambuja: In its recent AGM, the management ruled out a
merger of Ambuja Cement but pointed to acquisition and inorganic growth
opportunities in the near future. Signalling its conviction in the strength of the base
business, the promoter Holcim also recently increased its stake in the company to
49.3% from 46.2%.
v Expect strong Q1CY11 sequentially: After two soft quarters, we expect ACC to
report strong topline growth of 13.5% in Q1CY11 led by robust dispatch growth of
10–12% YoY (albeit over a low base) and modest realisation growth. We expect
realisations to increase 9% QoQ, which will drive margins sequentially up by 840bps
and EBITDA/t up by Rs 350–400.
v Valuations full; downgrade to HOLD: The stock has outperformed the Sensex by
28% over the past nine months. Valuations hold limited upside, with ACC trading
close to 8x EV/EBITDA one-year forward. We maintain our CY11/CY12 earnings
estimates and believe that investors will have better opportunities to enter into large
caps on seasonal corrections in stock prices.
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