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We expect ACC to continue to show improved volume growth,
owing to stabilisation of new capacities that commenced in
the past year in the southern and western regions. ACC, a
pan-India cement player with a balanced regional mix and
capacity of 30mtpa will partially benefit from utilisation
improvement in the eastern, northern and western regions;
however, earnings would be volatile, as ~45% of its volumes
are from the central and southern regions, where utilisation
is unfavourable. ACC is trading at a reasonable 8.1x CY12ii
EV/Ebitda. We recommend ADD on the stock.
Stabilisation of plants boosts volume growth: ACC recorded
strong volume growth in the past two quarters, owing to stabilisation
of new plants that commenced in the past year. We expect strong
volume growth (partially on a low base) to continue for another year,
but it would moderate from 2HCY12ii with likely increase in fight for
market share in the southern region (ACC undertook significant
capacity expansions in the southern and western regions).
Margin improvement likely on reduction in discounts: Our
channel checks indicate that ACC is offering large discounts relative
to peers to boost volumes in new markets. We expect these
discounts to reduce after the company’s products gain acceptance in
new markets, boosting margins slightly. However, we believe ACC’s
margins would be volatile over the next two years, compared with
those of ACL and UCL, owing to its larger presence in the central and
southern markets.
Costs may rise further: ACC procures ~45% of coal via linkages,
which is cheaper compared with imported and domestic open
market/e-auction prices. However, the share of coal via linkages has
declined from ~65% two years ago, and a marginal fall is likely,
going ahead. Substitution of linkage coal with open market/e-auction
coal is likely to increase costs marginally. ACC has been rationalising
costs over the past three years, which has led to reduction in other
expenses and power consumption. We expect rationalisation to
continue and partially mitigate the increase in coal cost.
Valuations reasonable; ADD: We have raised ACC’s CY12 and
CY13 earnings estimates by 3-12% to reflect likely improvement in
pricing power in regions other than central and south and reduction
in discounts offered in new markets entered recently. We expect
volatility in ACC’s earnings in the next two years, owing to likely
resurfacing of fight for market share in southern and central regions
with entry of new players and lower utilisation in the industry. We
value the stock at one-year forward rolling EV/Ebitda of 7.5x, which
is a tad lower than our target EV/Ebitda of 8x for Ambuja. Our
revised target price offers 9% upside from the current level.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect ACC to continue to show improved volume growth,
owing to stabilisation of new capacities that commenced in
the past year in the southern and western regions. ACC, a
pan-India cement player with a balanced regional mix and
capacity of 30mtpa will partially benefit from utilisation
improvement in the eastern, northern and western regions;
however, earnings would be volatile, as ~45% of its volumes
are from the central and southern regions, where utilisation
is unfavourable. ACC is trading at a reasonable 8.1x CY12ii
EV/Ebitda. We recommend ADD on the stock.
Stabilisation of plants boosts volume growth: ACC recorded
strong volume growth in the past two quarters, owing to stabilisation
of new plants that commenced in the past year. We expect strong
volume growth (partially on a low base) to continue for another year,
but it would moderate from 2HCY12ii with likely increase in fight for
market share in the southern region (ACC undertook significant
capacity expansions in the southern and western regions).
Margin improvement likely on reduction in discounts: Our
channel checks indicate that ACC is offering large discounts relative
to peers to boost volumes in new markets. We expect these
discounts to reduce after the company’s products gain acceptance in
new markets, boosting margins slightly. However, we believe ACC’s
margins would be volatile over the next two years, compared with
those of ACL and UCL, owing to its larger presence in the central and
southern markets.
Costs may rise further: ACC procures ~45% of coal via linkages,
which is cheaper compared with imported and domestic open
market/e-auction prices. However, the share of coal via linkages has
declined from ~65% two years ago, and a marginal fall is likely,
going ahead. Substitution of linkage coal with open market/e-auction
coal is likely to increase costs marginally. ACC has been rationalising
costs over the past three years, which has led to reduction in other
expenses and power consumption. We expect rationalisation to
continue and partially mitigate the increase in coal cost.
Valuations reasonable; ADD: We have raised ACC’s CY12 and
CY13 earnings estimates by 3-12% to reflect likely improvement in
pricing power in regions other than central and south and reduction
in discounts offered in new markets entered recently. We expect
volatility in ACC’s earnings in the next two years, owing to likely
resurfacing of fight for market share in southern and central regions
with entry of new players and lower utilisation in the industry. We
value the stock at one-year forward rolling EV/Ebitda of 7.5x, which
is a tad lower than our target EV/Ebitda of 8x for Ambuja. Our
revised target price offers 9% upside from the current level.
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