Higher opex leads to margin disappointment
We downgrade our rating on ACC to Hold from Buy with a revised price target
of Rs1,242 (earlier: Rs1,286) due to a) earnings cut of 15.2%/13% for
CY13E/CY14E considering higher operating costs (other expense and
employee costs) b) disappointment in current quarters’ earnings and c)
expensive valuations post sharp run-up in the stock price in the past 1.5
months. The company posted disappointing numbers with EBITDA at Rs2.3bn
(est. Rs3.1bn) and OPM at 9% (est. 12.9%) primarily due to a) Rs100/tonne QoQ
increase in other costs and b) Rs41/tonne QoQ increase in energy costs. Going
forward, we expect improvement in earnings led by recent price hikes taken
by cement manufacturers and expected recovery in sales volume. However, we
believe that the valuation at 9.3x CY14E EV/EBITDA is expensive considering
the uncertain macro environment.
We downgrade our rating on ACC to Hold from Buy with a revised price target
of Rs1,242 (earlier: Rs1,286) due to a) earnings cut of 15.2%/13% for
CY13E/CY14E considering higher operating costs (other expense and
employee costs) b) disappointment in current quarters’ earnings and c)
expensive valuations post sharp run-up in the stock price in the past 1.5
months. The company posted disappointing numbers with EBITDA at Rs2.3bn
(est. Rs3.1bn) and OPM at 9% (est. 12.9%) primarily due to a) Rs100/tonne QoQ
increase in other costs and b) Rs41/tonne QoQ increase in energy costs. Going
forward, we expect improvement in earnings led by recent price hikes taken
by cement manufacturers and expected recovery in sales volume. However, we
believe that the valuation at 9.3x CY14E EV/EBITDA is expensive considering
the uncertain macro environment.