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ACC (ACC)
Cement
Profitability lags peers, multiples lead. At 20X CY2012E earnings and 10.7X
EV/EBITDA, the ACC stock price is not taking cognizance of potential pitfalls to our
judicious earnings assumptions from (1) continued demand-supply imbalance, and
(2) higher input costs. ACC’s profitability at Rs650/ton (4QCY11) is significantly inferior
to peers and reflective of higher operating costs. We maintain our SELL rating with a
revised target price of Rs1,030 (previously Rs980) as we remain watchful of the
continued risks to earnings.
Reported income boosted by prior-period tax credit
ACC reported net sales of Rs25 bn (28% yoy, 16% qoq), operating profit of Rs3.9 bn (52% yoy,
77% qoq) and adjusted net income of Rs2.4 bn (55% yoy, 45% qoq) against our estimate of
Rs23.2 bn, Rs3.4 bn and Rs1.9 bn respectively. EBITDA beat was driven by higher-than-estimated
volumes (6 mn tons against estimated 5.7 mn tons) and realizations (Rs4,206/ton against
estimated Rs4,062/ton) though partially offset by higher freight and overhead expenses. We note
that reported net income of Rs4.7 bn includes Rs2.3 bn of prior-period tax credit. We discuss key
highlights of the result in detail in a subsequent section.
Early signs of demand revival not conforming sustenance, cost pressures likely to weigh
Cement prices on an average increased by Rs16-17/bag sequentially (with some moderation in
December), post the weakness witnessed in monsoon months buoyed by a revival of demand
during the quarter. In our view, the current capacity overhang is likely to continue in FY2013E as
well with utilization rates unlikely to inch over 75% even after factoring 8% consumption growth
in FY2013E.
We also remain watchful of the potential increase in power and fuel costs on account of the
revision in pricing structure as announced by Coal India (even after partial rollback). We currently
factor an increase in power and fuel costs by ~Rs66/ton in FY2013E.
Trading at 10.7X CY2012E EBITDA on modest assumptions; maintain SELL
We maintain our SELL rating on ACC with a revised target price of Rs1,030/share (previously
Rs980). ACC is currently trading at an EV/EBITDA of 10.7X CY2012E EBITDA (against the historical
average of 8X) and EV/ton of US$198/ton on CY2012E production. We note that current market
price implies 23% yoy growth in profitability in CY2012E on a peak multiple of 10X (see Exhibit 3).
We note that our estimates factor sustenance of pricing discipline as well as demand revival (to an
extent) as we build 7% and 6% growth in volumes and realizations and a corresponding 17%
improvement in profitability in CY2012E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC (ACC)
Cement
Profitability lags peers, multiples lead. At 20X CY2012E earnings and 10.7X
EV/EBITDA, the ACC stock price is not taking cognizance of potential pitfalls to our
judicious earnings assumptions from (1) continued demand-supply imbalance, and
(2) higher input costs. ACC’s profitability at Rs650/ton (4QCY11) is significantly inferior
to peers and reflective of higher operating costs. We maintain our SELL rating with a
revised target price of Rs1,030 (previously Rs980) as we remain watchful of the
continued risks to earnings.
Reported income boosted by prior-period tax credit
ACC reported net sales of Rs25 bn (28% yoy, 16% qoq), operating profit of Rs3.9 bn (52% yoy,
77% qoq) and adjusted net income of Rs2.4 bn (55% yoy, 45% qoq) against our estimate of
Rs23.2 bn, Rs3.4 bn and Rs1.9 bn respectively. EBITDA beat was driven by higher-than-estimated
volumes (6 mn tons against estimated 5.7 mn tons) and realizations (Rs4,206/ton against
estimated Rs4,062/ton) though partially offset by higher freight and overhead expenses. We note
that reported net income of Rs4.7 bn includes Rs2.3 bn of prior-period tax credit. We discuss key
highlights of the result in detail in a subsequent section.
Early signs of demand revival not conforming sustenance, cost pressures likely to weigh
Cement prices on an average increased by Rs16-17/bag sequentially (with some moderation in
December), post the weakness witnessed in monsoon months buoyed by a revival of demand
during the quarter. In our view, the current capacity overhang is likely to continue in FY2013E as
well with utilization rates unlikely to inch over 75% even after factoring 8% consumption growth
in FY2013E.
We also remain watchful of the potential increase in power and fuel costs on account of the
revision in pricing structure as announced by Coal India (even after partial rollback). We currently
factor an increase in power and fuel costs by ~Rs66/ton in FY2013E.
Trading at 10.7X CY2012E EBITDA on modest assumptions; maintain SELL
We maintain our SELL rating on ACC with a revised target price of Rs1,030/share (previously
Rs980). ACC is currently trading at an EV/EBITDA of 10.7X CY2012E EBITDA (against the historical
average of 8X) and EV/ton of US$198/ton on CY2012E production. We note that current market
price implies 23% yoy growth in profitability in CY2012E on a peak multiple of 10X (see Exhibit 3).
We note that our estimates factor sustenance of pricing discipline as well as demand revival (to an
extent) as we build 7% and 6% growth in volumes and realizations and a corresponding 17%
improvement in profitability in CY2012E.
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