Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Associated Cement Companies
As good as it can get
1Q CY11 beats expectations led by cost surprise
ACC reported 1Q CY11 EBITDA at Rs5.6bn, up 172% QoQ. Results were better
than our expectations primarily due to strong cost savings. Operating cost per ton
fell 5% QoQ (down ~Rs8 per bag) versus our expectation of flat costs. Cement
prices for ACC were up as expected by ~Rs19/bag largely in line with the
increase for Ambuja. Volumes also grew ~10% YoY & QoQ. ACC’s EBITDA per
ton improved to ~Rs906/ton vs Rs365/ton in 4Q CY10.
Strong start lifts CY11 profit; expect cement prices to fall
Current cement prices are higher than 1Q CY11 even though prices eased a tad
in April after climbing to historical highs in March 2011. This strong (Jan-Apr) start
drives our ~39% EBITDA upgrade for CY11, and we have adjusted our EPS
estimates. However, we do not expect current prices to sustain and believe
cement prices could fall dramatically during the upcoming slack season due to
steep excess supply. Maintain underperform
Continued demand weakness could test rational behaviour
Our industry forecast of 9% demand growth for yr-ending Mar ’12 vs 5% in yrending
Mar ’11 seems optimistic and so far, there are no visible upside catalysts.
Despite factoring demand recovery, we foresee YoY drop in the industry’s cap.
utilization. We share the industry’s concern that continued demand weakness may
test rational behaviour as producers may be reluctant to cut prodn. further
ACC’s cost have strong volume linkage; we see downside
Our conversation with ACC indicates that the 1Q cost surprise reflects economies
in both clinker and power production owing to stabilization of the recent Wadi
expansion. Alongwith 1Q results, ACC also announced commissioning of its
7000tpd Chanda expansion. We worry that ACC’s costs and earnings may be
highly vulnerable to a demand slowdown given the scale of its expansions
Price objective basis & risk
Assoc. Cement (ADCLF)
We have a price objective of Rs800/sh for ACC. We value the company at a
CY11E EV/capacity of around US$95/ton based on a 20-25% discount versus the
industry's current replacement cost of US$120-125/ton. Trough discount vs
replacement cost was steeper at 40-45% in the previous cycle but structurally
improved RoEs and significantly healthier balance sheets may warrant lower
discount levels in the current cycle. The 20-25% discount is in line with the
average (rather than trough) discount witnessed through the previous downturn
(1997-2002). Downside risk to our PO stems from continued rise in energy prices.
Upside possibilities stem from rational pricing by producers and unforeseen
easing in energy prices especially coal.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Associated Cement Companies
As good as it can get
1Q CY11 beats expectations led by cost surprise
ACC reported 1Q CY11 EBITDA at Rs5.6bn, up 172% QoQ. Results were better
than our expectations primarily due to strong cost savings. Operating cost per ton
fell 5% QoQ (down ~Rs8 per bag) versus our expectation of flat costs. Cement
prices for ACC were up as expected by ~Rs19/bag largely in line with the
increase for Ambuja. Volumes also grew ~10% YoY & QoQ. ACC’s EBITDA per
ton improved to ~Rs906/ton vs Rs365/ton in 4Q CY10.
Strong start lifts CY11 profit; expect cement prices to fall
Current cement prices are higher than 1Q CY11 even though prices eased a tad
in April after climbing to historical highs in March 2011. This strong (Jan-Apr) start
drives our ~39% EBITDA upgrade for CY11, and we have adjusted our EPS
estimates. However, we do not expect current prices to sustain and believe
cement prices could fall dramatically during the upcoming slack season due to
steep excess supply. Maintain underperform
Continued demand weakness could test rational behaviour
Our industry forecast of 9% demand growth for yr-ending Mar ’12 vs 5% in yrending
Mar ’11 seems optimistic and so far, there are no visible upside catalysts.
Despite factoring demand recovery, we foresee YoY drop in the industry’s cap.
utilization. We share the industry’s concern that continued demand weakness may
test rational behaviour as producers may be reluctant to cut prodn. further
ACC’s cost have strong volume linkage; we see downside
Our conversation with ACC indicates that the 1Q cost surprise reflects economies
in both clinker and power production owing to stabilization of the recent Wadi
expansion. Alongwith 1Q results, ACC also announced commissioning of its
7000tpd Chanda expansion. We worry that ACC’s costs and earnings may be
highly vulnerable to a demand slowdown given the scale of its expansions
Price objective basis & risk
Assoc. Cement (ADCLF)
We have a price objective of Rs800/sh for ACC. We value the company at a
CY11E EV/capacity of around US$95/ton based on a 20-25% discount versus the
industry's current replacement cost of US$120-125/ton. Trough discount vs
replacement cost was steeper at 40-45% in the previous cycle but structurally
improved RoEs and significantly healthier balance sheets may warrant lower
discount levels in the current cycle. The 20-25% discount is in line with the
average (rather than trough) discount witnessed through the previous downturn
(1997-2002). Downside risk to our PO stems from continued rise in energy prices.
Upside possibilities stem from rational pricing by producers and unforeseen
easing in energy prices especially coal.
No comments:
Post a Comment