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Earnings beat driven by lower operating cost
ACC reported better than expected Mar quarter results with EBITDA at Rs5.8bn (-
12% y/y; +70% q/q) after a weak Dec quarter. Reported EBITDA was 14% higher
than JPMe (Rs5.1bn) and 19% above Bloomberg consensus (Rs4.9bn) driven by the
surprising decline in operating costs/MT by 4% q/q. PAT of Rs3.5bn (+37% q/q; -
13% y/y) in the 1QCY11 was also higher than JPMe (Rs2.9bn) and consensus
(Rs2.7bn), which was driven by the 72% increase in Other income sequentially
(driven by higher int rates) and lower than expected tax rate (27% vs. JPMe 31%).
Strong volume and ASPs: Cement volumes increased 10% q/q were inline with our
expectations. Realizations increased 5% sequentially aided by the price hike taken in
most markets since Dec-Jan with ACC’s exposure to Central India helping pricing.
ACC’s volumes and pricing in the 1Q helped drive sales growth of 16% q/q and 13%
y/y.
Operating cost to increase from current levels: Operating cost/MT for the March
quarter declined 4% q/q due to the 31% decline in employee cost/MT (due to one
time expense in Dec-qtr) and -4% in power cost/MT. Power costs declined
sequentially as the company increased captive power consumption. However, the
higher impact from coal (both import and domestic) will increase this cost item over
the next few quarters.
The strong pricing environment and lower than expected costs helped improve
EBITDA/MT to Rs941/MT (+55% q/q; -20% y/y) vs. JPM estimates at Rs818/MT.
Given the start of pricing correction in North/West India markets, continued tepid
demand conditions and the full impact from Coal India’s 30% price hike to flow
from 1QFY12 onwards we expect margins to be squeezed over the next year.
Valuation and Risks to rating
We increase our FY12/FY13E EPS by 26% and 7% respectively. ACC’s valuations
at $150/MT EV/MT CY11E and 10.5x EV/EBITDA is still at a premium to UTCEM
($123/MT and 8.3x FY12E). We continue to believe this premium is not warranted
and reiterate our UW rating on ACC with a revised Mar-12 PT of Rs900 (from
Rs830 previously) based on $120/MT CY12E EV/MT. We increase our target
multiple given the increasing cost of greenfield capacity in the country. Our PT
translates into EV/EBITDA multiples of 8.4x and 8.2x on CY11E and 12E,
respectively. Key risks to our PT and estimates are a sharp recovery in cement
demand and prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings beat driven by lower operating cost
ACC reported better than expected Mar quarter results with EBITDA at Rs5.8bn (-
12% y/y; +70% q/q) after a weak Dec quarter. Reported EBITDA was 14% higher
than JPMe (Rs5.1bn) and 19% above Bloomberg consensus (Rs4.9bn) driven by the
surprising decline in operating costs/MT by 4% q/q. PAT of Rs3.5bn (+37% q/q; -
13% y/y) in the 1QCY11 was also higher than JPMe (Rs2.9bn) and consensus
(Rs2.7bn), which was driven by the 72% increase in Other income sequentially
(driven by higher int rates) and lower than expected tax rate (27% vs. JPMe 31%).
Strong volume and ASPs: Cement volumes increased 10% q/q were inline with our
expectations. Realizations increased 5% sequentially aided by the price hike taken in
most markets since Dec-Jan with ACC’s exposure to Central India helping pricing.
ACC’s volumes and pricing in the 1Q helped drive sales growth of 16% q/q and 13%
y/y.
Operating cost to increase from current levels: Operating cost/MT for the March
quarter declined 4% q/q due to the 31% decline in employee cost/MT (due to one
time expense in Dec-qtr) and -4% in power cost/MT. Power costs declined
sequentially as the company increased captive power consumption. However, the
higher impact from coal (both import and domestic) will increase this cost item over
the next few quarters.
The strong pricing environment and lower than expected costs helped improve
EBITDA/MT to Rs941/MT (+55% q/q; -20% y/y) vs. JPM estimates at Rs818/MT.
Given the start of pricing correction in North/West India markets, continued tepid
demand conditions and the full impact from Coal India’s 30% price hike to flow
from 1QFY12 onwards we expect margins to be squeezed over the next year.
Valuation and Risks to rating
We increase our FY12/FY13E EPS by 26% and 7% respectively. ACC’s valuations
at $150/MT EV/MT CY11E and 10.5x EV/EBITDA is still at a premium to UTCEM
($123/MT and 8.3x FY12E). We continue to believe this premium is not warranted
and reiterate our UW rating on ACC with a revised Mar-12 PT of Rs900 (from
Rs830 previously) based on $120/MT CY12E EV/MT. We increase our target
multiple given the increasing cost of greenfield capacity in the country. Our PT
translates into EV/EBITDA multiples of 8.4x and 8.2x on CY11E and 12E,
respectively. Key risks to our PT and estimates are a sharp recovery in cement
demand and prices.
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