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ACC trades at replacement cost at $122.9, has a strong financial position with net cash of
Rs24.8bn(E) in FY12. We estimate the minimum break-even EBITDA/mt required for new assets
to break-even at Rs700/mt. Our forecasts assume similar margins for ACC, at which it would
make a 18%
We estimate that new assets need a EBITDA/mt of at least Rs700/mt to breakeven.
At the current capital cost of $120 EV/mt, we estimate that new cement assets which
are being created in the cement sector will require a EBITDA/mt of at least Rs700/mt
to cover interest and depreciation charges.
Given the over-supply conditions in the industry (with capacity utilisation rates
expected to be 75-77% over the next 2 years), we believe industry margins would
average around the break-even levels for new greenfield cement capacities.
The weakness in cement demand growth to 5% FY11 ( from long term average
growth rates of 8-9%), and further drop in growth momentum to 3-4% (E) in FY12
further delays the return to demand-supply balance conditions to FY14 in our view.
While we do expect incremental capacity additions in the sector over the next 2-3
years to lower than incremental demand, we believe the 103.9mmt of capacity
added in the last 3 years ( FY09-FY11), as compared to incremental cement demand
of just 32.8mmt in this period would take time to absorb.
Where to stay invested in the cement sector for the next 2 years ?
We believe companies whose capacity additions have been moderate in the last 3
years, who have little or no leverage and stocks are trading at close to replacement cost
would be ideal stocks to stay invested.
In our coverage universe, ACC trades at $122.9 EV/mt, Ambuja Cements at $159
EV/mt, Ultratech at $137.7 EV/mt, India Cements at $66 EV/mt, and Grasim at $71
EV/mt ( implied after valuing VSF business at 6.5x EV/EBITDA).
While, Ambuja Cements and ACC have excellent financial position with net cash of
Rs27238mn and Rs24832mn on FY12 E basis, we ACC is cheaper on a EV/mt, and
hence has limited down-side risk.
ACC's ROE's to stay healthy at 18%, at bottom of cycle margins
We estimate ACC's EBITDA/mt of Rs750-800/mt over the next 3 years, at which
level ACC would make ROE of 17-18%.
ACC's EBITDA CAGR in the last 5 years has been -1.3%, as its volume growth was
just 3%. However, all its expanded capacities now on stream ( with a capacity of
30.5mmt), we expect ACC's volume growth to recover to 9%, improving its EBITDA
CAGR to 14% over the next 3 years. We have assumed margins close to bottom of cycle
margins in our view in our forecasts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC trades at replacement cost at $122.9, has a strong financial position with net cash of
Rs24.8bn(E) in FY12. We estimate the minimum break-even EBITDA/mt required for new assets
to break-even at Rs700/mt. Our forecasts assume similar margins for ACC, at which it would
make a 18%
We estimate that new assets need a EBITDA/mt of at least Rs700/mt to breakeven.
At the current capital cost of $120 EV/mt, we estimate that new cement assets which
are being created in the cement sector will require a EBITDA/mt of at least Rs700/mt
to cover interest and depreciation charges.
Given the over-supply conditions in the industry (with capacity utilisation rates
expected to be 75-77% over the next 2 years), we believe industry margins would
average around the break-even levels for new greenfield cement capacities.
The weakness in cement demand growth to 5% FY11 ( from long term average
growth rates of 8-9%), and further drop in growth momentum to 3-4% (E) in FY12
further delays the return to demand-supply balance conditions to FY14 in our view.
While we do expect incremental capacity additions in the sector over the next 2-3
years to lower than incremental demand, we believe the 103.9mmt of capacity
added in the last 3 years ( FY09-FY11), as compared to incremental cement demand
of just 32.8mmt in this period would take time to absorb.
Where to stay invested in the cement sector for the next 2 years ?
We believe companies whose capacity additions have been moderate in the last 3
years, who have little or no leverage and stocks are trading at close to replacement cost
would be ideal stocks to stay invested.
In our coverage universe, ACC trades at $122.9 EV/mt, Ambuja Cements at $159
EV/mt, Ultratech at $137.7 EV/mt, India Cements at $66 EV/mt, and Grasim at $71
EV/mt ( implied after valuing VSF business at 6.5x EV/EBITDA).
While, Ambuja Cements and ACC have excellent financial position with net cash of
Rs27238mn and Rs24832mn on FY12 E basis, we ACC is cheaper on a EV/mt, and
hence has limited down-side risk.
ACC's ROE's to stay healthy at 18%, at bottom of cycle margins
We estimate ACC's EBITDA/mt of Rs750-800/mt over the next 3 years, at which
level ACC would make ROE of 17-18%.
ACC's EBITDA CAGR in the last 5 years has been -1.3%, as its volume growth was
just 3%. However, all its expanded capacities now on stream ( with a capacity of
30.5mmt), we expect ACC's volume growth to recover to 9%, improving its EBITDA
CAGR to 14% over the next 3 years. We have assumed margins close to bottom of cycle
margins in our view in our forecasts.
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