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ACC saw an EBITDA CAGR of -1.3% in the last five years due to a weak volume CAGR of
just 3%. We expect the EBITDA CAGR to rise to 14% over the next three years as we
forecast a volume CAGR of 9%. Management is focusing on improving utilisation rates and
easing the pace of expansion. Upgrade to Hold.
ACC management focusing on improving utilisation, not on expansion
Management has indicated that it is not in a hurry to invest in new capacities, given the
oversupply in the industry. It would appear management is focusing more on improving capacity
utilisation at its existing plants and the commissioning of all its ongoing projects at Wadi and
Chanda, thereby regaining market share throughout India. ACC now has a production capacity of
30.5mt, compared with its cement sales volumes in FY10 of 21.29mt. We expect sales volumes
to rise to 23.21mt in FY11 (12.1mt in 1H11), 25.27mt in FY12, and 27.55mt in FY13.
Management has stated that it is exploring expansion plans. However, it is not in a hurry to move
aggressively on the next phase of investments, even though it is currently sitting on net cash of
Rs20bn in the balance sheet.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-low 5.5% in FY11 to just 1% yoy in
1Q12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for FY12,
assuming a post-monsoon season recovery in demand. We expect capacity additions of 20mmt
in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt. We expect
oversupply conditions to continue into next year, given our expectation that demand growth will
remain lower than the overall trend (8-10%) in both FY11 and FY12. Hence, we expect cement
margins to remain at Rs800-900/mt for the next two years.
We upgrade ACC to Hold with a target price of Rs966.79
We introduce our FY13 EPS forecast of Rs75.1/share and raise our FY11 and FY12 forecasts by
10% each. ACC’s balance-sheet is strong with net cash of Rs20bn, which we expect to rise to
Rs30.3bn by FY13. The stock trades at EV/mt of US$120, which we believe is fair, and hence
see little downside risk from current levels. Based on our raised forecasts, we increase our DCFbased
target price to Rs966.79 (from Rs832.76) and upgrade our rating to Hold
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC saw an EBITDA CAGR of -1.3% in the last five years due to a weak volume CAGR of
just 3%. We expect the EBITDA CAGR to rise to 14% over the next three years as we
forecast a volume CAGR of 9%. Management is focusing on improving utilisation rates and
easing the pace of expansion. Upgrade to Hold.
ACC management focusing on improving utilisation, not on expansion
Management has indicated that it is not in a hurry to invest in new capacities, given the
oversupply in the industry. It would appear management is focusing more on improving capacity
utilisation at its existing plants and the commissioning of all its ongoing projects at Wadi and
Chanda, thereby regaining market share throughout India. ACC now has a production capacity of
30.5mt, compared with its cement sales volumes in FY10 of 21.29mt. We expect sales volumes
to rise to 23.21mt in FY11 (12.1mt in 1H11), 25.27mt in FY12, and 27.55mt in FY13.
Management has stated that it is exploring expansion plans. However, it is not in a hurry to move
aggressively on the next phase of investments, even though it is currently sitting on net cash of
Rs20bn in the balance sheet.
We believe the industry surplus could go on for some time
Cement industry demand growth slipped from an already-low 5.5% in FY11 to just 1% yoy in
1Q12 (quarter ending June 2011). However, the industry estimates growth of 4-5% for FY12,
assuming a post-monsoon season recovery in demand. We expect capacity additions of 20mmt
in FY12, which should take industry capacity to 325mmt, vs demand of 225mmt. We expect
oversupply conditions to continue into next year, given our expectation that demand growth will
remain lower than the overall trend (8-10%) in both FY11 and FY12. Hence, we expect cement
margins to remain at Rs800-900/mt for the next two years.
We upgrade ACC to Hold with a target price of Rs966.79
We introduce our FY13 EPS forecast of Rs75.1/share and raise our FY11 and FY12 forecasts by
10% each. ACC’s balance-sheet is strong with net cash of Rs20bn, which we expect to rise to
Rs30.3bn by FY13. The stock trades at EV/mt of US$120, which we believe is fair, and hence
see little downside risk from current levels. Based on our raised forecasts, we increase our DCFbased
target price to Rs966.79 (from Rs832.76) and upgrade our rating to Hold
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