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1QCY11 results
ACC’s 1Q net earnings declined 13% YoY to Rs3.5bn, marginally below
our estimates (better than consensus estimates of Rs3.2bn, though).
While realisations were better (+12% QoQ), costs were much higher. The
impact of the producer discipline nonetheless was visible as Ebitda
margins rose sharply on a sequential basis to Rs900/t. The stock has
outperformed the Sensex by 10ppt ytd and trades at 10x EV/Ebitda which
appears expensive in the context of weak fundamentals (rising costs,
continued supply pressures impacting cement prices). Downgrade to Sell.
1Q operating Ebitda marginally lower than our estimates
ACC’s 1Q Ebitda declined 11% YoY to Rs5.5bn, 7% below our estimates.
While volumes (6.2mt; +10% YoY) were broadly in-line, blended realisations
(Rs195/bag; +12% QoQ) were higher. Overall costs were however higher due
to higher other expenses (+20% YoY) and unit cost of manufacture (materials
plus energy; +11% QoQ). Ebitda/t rose sharply on a sequential basis to
Rs900/t, though was down 19% YoY. Interest expenses rose 84% following
the capitalisation of new plants while tax rate came in in-line at ~28%. On
the whole, net earnings came in at Rs3.5bn, down 13% YoY (+37% QoQ).
While front ended capacity should drive volume growth in 2011…
ACC’s volumes in 2010 were impacted due to capacity constraints as it
reported a ~1% decline in volumes. With the conclusion of on-going
expansions (in west), ACC’s capacity now stands at 30mt. We therefore model
in ~11% volume growth in 2011 (1Q volumes: + 10%).
… cost/pricing pressures would keep margins under pressure
ACC’s Ebitda margins declined over 35% YoY to Rs730/t in CY10 due to lower
realisations, higher costs. While pricing discipline has helped as realisations
rose to a six quarter high, we expect pressures to continue in the coming
quarters due to surplus capacity scenario. Our recent channel checks already
indicate a decline in cement pricing in certain regions (central, east). Cost
pressures (particularly energy costs) would be further margin headwind as
2QCY11 would reflect the impact of 30% rise in linkage coal price (~50% mix
for ACC). On the whole, we expect ACC’s Ebitda/t to stay largely flat in 2011.
Maintain earning estimates; downgrade to SELL
We maintain our EPS estimates for CY11-12; also introduce CY13 estimates.
We roll over our target multiples to Mar-13 and revise up target price to
Rs900/sh (from Rs875/sh). Current valuations at 10x EV/Ebitda, 20x PE are
expensive in the context of weak industry fundamentals; downgrade to Sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QCY11 results
ACC’s 1Q net earnings declined 13% YoY to Rs3.5bn, marginally below
our estimates (better than consensus estimates of Rs3.2bn, though).
While realisations were better (+12% QoQ), costs were much higher. The
impact of the producer discipline nonetheless was visible as Ebitda
margins rose sharply on a sequential basis to Rs900/t. The stock has
outperformed the Sensex by 10ppt ytd and trades at 10x EV/Ebitda which
appears expensive in the context of weak fundamentals (rising costs,
continued supply pressures impacting cement prices). Downgrade to Sell.
1Q operating Ebitda marginally lower than our estimates
ACC’s 1Q Ebitda declined 11% YoY to Rs5.5bn, 7% below our estimates.
While volumes (6.2mt; +10% YoY) were broadly in-line, blended realisations
(Rs195/bag; +12% QoQ) were higher. Overall costs were however higher due
to higher other expenses (+20% YoY) and unit cost of manufacture (materials
plus energy; +11% QoQ). Ebitda/t rose sharply on a sequential basis to
Rs900/t, though was down 19% YoY. Interest expenses rose 84% following
the capitalisation of new plants while tax rate came in in-line at ~28%. On
the whole, net earnings came in at Rs3.5bn, down 13% YoY (+37% QoQ).
While front ended capacity should drive volume growth in 2011…
ACC’s volumes in 2010 were impacted due to capacity constraints as it
reported a ~1% decline in volumes. With the conclusion of on-going
expansions (in west), ACC’s capacity now stands at 30mt. We therefore model
in ~11% volume growth in 2011 (1Q volumes: + 10%).
… cost/pricing pressures would keep margins under pressure
ACC’s Ebitda margins declined over 35% YoY to Rs730/t in CY10 due to lower
realisations, higher costs. While pricing discipline has helped as realisations
rose to a six quarter high, we expect pressures to continue in the coming
quarters due to surplus capacity scenario. Our recent channel checks already
indicate a decline in cement pricing in certain regions (central, east). Cost
pressures (particularly energy costs) would be further margin headwind as
2QCY11 would reflect the impact of 30% rise in linkage coal price (~50% mix
for ACC). On the whole, we expect ACC’s Ebitda/t to stay largely flat in 2011.
Maintain earning estimates; downgrade to SELL
We maintain our EPS estimates for CY11-12; also introduce CY13 estimates.
We roll over our target multiples to Mar-13 and revise up target price to
Rs900/sh (from Rs875/sh). Current valuations at 10x EV/Ebitda, 20x PE are
expensive in the context of weak industry fundamentals; downgrade to Sell.
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