Result largely in-line; maintain Buy ACC :: Centrum

Result largely in-line; maintain Buy
ACC’s Q1CY13 result was largely in-line with our estimates on operational parameters with OPM of 15.3% (vs. est. 15.1%) and operating profit of Rs4.5bn (vs. est. 4.6bn). Though revenue of the company was 4.4% below our estimate, lower freight cost (Rs 960/tonne vs. est. Rs1,000/tonne) helped the company beat our margin estimate. However, higher other income (Rs1.5bn vs. est. Rs1.2bn) led to higher adjusted profit (adj. for Rs1.5bn tax adj. for earlier years) of Rs3bn (vs. est. Rs2.8bn). The numbers are not comparable with financials of Q1 and Q4CY12 due to the merger of two subsidiaries’ financials in Q4CY12. Going forward, we expect recovery in cement demand led by electoral spending (general elections are expected in May 2014), improvement in capex activities of industries and higher demand from the housing segment (due to our expectation of a decline in interest rate). Improvement in cement demand will aid pricing power of manufacturers and they will be able to pass on the rise in input cost to consumers. Cement price has remained subdued for last 3-4 months due to sluggish demand across India. We expect recovery in OPM and profitability of the company post Q2CY13E. We maintain Buy on the stock with a price target of Rs1,389 (earlier: Rs1,381) based on 8x CY14E EBITDA.

Sharp decline in margins: ACC reported revenues of Rs29.1bn (vs. est. Rs30.5bn), EBITDA of Rs4.5bn (vs. est. Rs4.6bn) and adjusted profit of Rs3bn (vs. est. Rs2.8bn). Reported numbers are not comparable due to the amalgamation of financials of two subsidiaries during Q4CY12. Operating profit declined 27.5% YoY to Rs4.5bn and OPM contracted 6.2pp YoY to 15.3%.

Cement business’ profitability under pressure on lower volume and higher opex: Revenue from cement business declined 2.6% YoY to Rs27.9bn primarily due to 4.5% YoY drop in sales volume to 6.42mt. Realization was up 3.2% YoY to Rs4,393/tonne. Operating cost increased 10.8% YoY to Rs3,700/tonne led by higher raw material, employee, freight and other costs. Operating profit of cement business declined 27.8% YoY to Rs4.4bn and OPM contracted 5.6pp YoY to 16%. EBITDA/tonne of cement declined 24.4% YoY to Rs693/tonne.

�� -->



Lower operating profit and higher tax rate (adj. for benefits due to previous year’s credits) impact profits: Other income was up 55.6% YoY to Rs1.5bn. Depreciation cost increased 5.9% YoY to Rs1.4bn. Interest cost declined 65.8% YoY to Rs108mn. Adjusted tax rate was at 33.3% against 10.6% in Q1CY12. Led by lower operating profit (27.5% YoY decline) and higher adjusted tax rate, adjusted profit declined 25.7% YoY to Rs3bn.

EPS estimates revised: We have revised our realization assumption downwards by 2.5% to Rs4,727/tonne for CY13E, which leads to 2.5% downwards revision in EBITDA estimates for the year. However, considering higher other income and lower interest cost, our EPS assumption stands marginally revised downwards to Rs70.7 (earlier: Rs71). For CY14E, our EPS assumption stands at Rs96.3 against Rs93.4 earlier.

Maintain Buy: At the CMP, the stock trades at 12.7x CY14E EPS, 7x EV/EBITDA, and EV/tonne of US$114.7. We value the company at 8x CY14E EBITDA and maintain Buy rating on the stock with a one-year price target of Rs1,389 (earlier Rs1,381).