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ACC (ACC.BO)
Sell Equity Research
Above expectations: Realisations surprise, margins peak; Sell
What surprised us
ACC reported 1QCY11 net income of Rs3.5bn (down 13% yoy but up 37%
qoq), 21% above our (and 10% above Reuters consensus) expectations.
Revenue stood at Rs23.9bn (up 12% yoy and 15% qoq), which is 4% above
our estimates due to higher-than-expected average realisations on the
back of strong pricing action in all key markets. At the operating level,
EBITDA of Rs5.8bn was 15% above our estimates. Overall costs remained
flat qoq as the impact of higher input costs (such as slag, fly ash, gypsum)
was offset by savings on power cost (as captive power replaced expensive
grid power at Chanda and Wadi) and other expenses. EBITDA/ton stood at
Rs941 (GSe: Rs807) vs. Rs1,177 in 1QCY10. The company reported net
cash of Rs16bn.
What to do with the stock
The pick up in cement prices since Sept. 2010 has turned out to be much
stronger than anticipated, driving the realisation and margin surprises. We
believe that ACC’s EBITDA/ton has peaked as: 1) with cement prices in East
and Central India seeing some correction in recent weeks, we believe
prices in other regions have peaked and may come off closer to the start of
the monsoon by June, and 2) we expect the impact of Coal India’s price
hike in March to start impacting margins from 2QCY2011 onwards. At
123% EV/RC (EV/ton of US$147), the stock is trading above mid-cycle levels
of 100% EV/RC. We reiterate our Sell rating with a 12-m EV/RC-based TP of
Rs934, implying 17% potential downside. Key risks include sustained high
cement pricing due to supplier discipline and/or demand revival.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC (ACC.BO)
Sell Equity Research
Above expectations: Realisations surprise, margins peak; Sell
What surprised us
ACC reported 1QCY11 net income of Rs3.5bn (down 13% yoy but up 37%
qoq), 21% above our (and 10% above Reuters consensus) expectations.
Revenue stood at Rs23.9bn (up 12% yoy and 15% qoq), which is 4% above
our estimates due to higher-than-expected average realisations on the
back of strong pricing action in all key markets. At the operating level,
EBITDA of Rs5.8bn was 15% above our estimates. Overall costs remained
flat qoq as the impact of higher input costs (such as slag, fly ash, gypsum)
was offset by savings on power cost (as captive power replaced expensive
grid power at Chanda and Wadi) and other expenses. EBITDA/ton stood at
Rs941 (GSe: Rs807) vs. Rs1,177 in 1QCY10. The company reported net
cash of Rs16bn.
What to do with the stock
The pick up in cement prices since Sept. 2010 has turned out to be much
stronger than anticipated, driving the realisation and margin surprises. We
believe that ACC’s EBITDA/ton has peaked as: 1) with cement prices in East
and Central India seeing some correction in recent weeks, we believe
prices in other regions have peaked and may come off closer to the start of
the monsoon by June, and 2) we expect the impact of Coal India’s price
hike in March to start impacting margins from 2QCY2011 onwards. At
123% EV/RC (EV/ton of US$147), the stock is trading above mid-cycle levels
of 100% EV/RC. We reiterate our Sell rating with a 12-m EV/RC-based TP of
Rs934, implying 17% potential downside. Key risks include sustained high
cement pricing due to supplier discipline and/or demand revival.
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