Goldman Sachs, ACC (ACC.BO) err group 2QCY13 earnings in line; overshadowed by group restructuring

ACC (ACC.BO)
Neutral Equity Research
2QCY13 earnings in line; overshadowed by group restructuring
What surprised us
ACC reported 2QCY13 pre-exceptionals PAT of Rs2.62bn (-6% qoq, -37%
yoy), largely in line with GSe of Rs2.65bn. Key takeaways: 1) EBITDA at
Rs4.34bn (-5% qoq,-33% yoy) was largely in line with GSe of Rs4.27bn; 2)
net sales declined 4% qoq/yoy to Rs27.95bn (GSe Rs27.79bn; 3) cement
volumes increased 1%yoy to 6.12mt (-5% qoq) while cement ASP
increased 1% qoq to Rs4,298/t (-4% yoy). 4) Cement EBITDA/T remained
flat qoq at Rs703/t (-34% yoy); 4) overall EBITDA margin remained flat qoq
at 16%; 5) cement EBITDA declined 5% qoq to Rs4.3bn (-33%yoy) while
RMC EBITDA declined 20% qoq to Rs40mn (-33% yoy).
We believe the group restructuring announced yesterday is likely to
overshadow the 2QCY13 results.
What to do with the stock
We remain Neutral on ACC with a 12-month Director's Cut-based target
price of Rs1,250. Holcim plans to sell its 50.03% stake in ACC to Ambuja at
approx. US112/t – see ‘Ambuja to acquire 50% stake in ACC from Holcim’
dated July 25, 2013. We see limited upside for ACC as it is trading at 9.2X
FY14E EV/EBITDA (at higher end of historical range). We reiterate our
cautious view on large cap cement stocks due to expensive valuations.
ACC’s capacity expansion of 5mt is back-ended and scheduled to come onstream only by CY15. We believe cement demand and prices are likely to
remain weak in the near term, which could be an overhang on cement
stocks. Key risks – Upside: Cement demand and prices rising significantly;
Downside: Margins declining due to continued weak cement demand.
ACC’s 2QCY13 earnings were largely in line with our estimates

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