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Associated Cement Companies
Strong near-term, but highly
vulnerable
Strong YoY volume growth helped 3Q CY11 results
ACC’s 3Q CY11 EBITDA grew 44% YoY backed by strong volume growth. The
Co’s 18% volume growth in 3Q CY11 compares with ~6% growth for the industry,
and mostly reflects ACC’s market share gains in south India. EBITDA margin in
3Q CY11 was up ~100bps YoY adjusting for non-recurring employee payout
during the quarter. Margin performance was below consensus and our
expectations due to higher than expected energy and overhead costs.
Cement prices up again in October; pain seems postponed
Our feedback from dealers indicates that current cement prices are up ~10% vs
4Q CY10 and up 6% MoM for ACC. We see the industry's rational pricing
behaviour as a short-term postponement of pain given steep overcapacity
& downside risk to demand expectations. Price sustainability appears most
challenging in south India given JPA’s large expansion.
CY12E profit cut; coal cost may rise; volume growth to ease
Post 3Q results, we have cut CY12 EBITDA forecast by ~9% while CY11 EBITDA
stays largely unchanged (+2%). ACC sources nearly 40% of its coal requirement
from e-auctions. Continued ring-fencing of e-auction coal for the power sector is
likely to exert upward pressure on energy costs for ACC. On the volume front,
ACC’s strong outperformance vs the industry should ease in CY12E as the Co’s
large capacity expansions are already factored into recent market share gains.
Maintain underperform as risk-reward seems unfavorable
ACC is trading at an EV/capacity of ~US$134/ton i.e. ~10% premium to
replacement cost. Upside potential appears capped at ~US$150/ton assuming
rational pricing sustains while downside could be steeper at ~US$95/ton if
demand recovery fails to materialize or rational industry behavior falls apart.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Associated Cement Companies
Strong near-term, but highly
vulnerable
Strong YoY volume growth helped 3Q CY11 results
ACC’s 3Q CY11 EBITDA grew 44% YoY backed by strong volume growth. The
Co’s 18% volume growth in 3Q CY11 compares with ~6% growth for the industry,
and mostly reflects ACC’s market share gains in south India. EBITDA margin in
3Q CY11 was up ~100bps YoY adjusting for non-recurring employee payout
during the quarter. Margin performance was below consensus and our
expectations due to higher than expected energy and overhead costs.
Cement prices up again in October; pain seems postponed
Our feedback from dealers indicates that current cement prices are up ~10% vs
4Q CY10 and up 6% MoM for ACC. We see the industry's rational pricing
behaviour as a short-term postponement of pain given steep overcapacity
& downside risk to demand expectations. Price sustainability appears most
challenging in south India given JPA’s large expansion.
CY12E profit cut; coal cost may rise; volume growth to ease
Post 3Q results, we have cut CY12 EBITDA forecast by ~9% while CY11 EBITDA
stays largely unchanged (+2%). ACC sources nearly 40% of its coal requirement
from e-auctions. Continued ring-fencing of e-auction coal for the power sector is
likely to exert upward pressure on energy costs for ACC. On the volume front,
ACC’s strong outperformance vs the industry should ease in CY12E as the Co’s
large capacity expansions are already factored into recent market share gains.
Maintain underperform as risk-reward seems unfavorable
ACC is trading at an EV/capacity of ~US$134/ton i.e. ~10% premium to
replacement cost. Upside potential appears capped at ~US$150/ton assuming
rational pricing sustains while downside could be steeper at ~US$95/ton if
demand recovery fails to materialize or rational industry behavior falls apart.
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