ACC - Volumes, Costs Disappoint; Result Update Q3CY14 :: Edelweiss

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ACC’s Q3CY14 EBITDA of INR3.8bn (up 32% YoY) was 5% below estimate due to disappointment in volumes and costs even as realisation growth of ~2% QoQ was in line. Volumes grew just 1% YoY (versus our 4% estimate), while variable cost/t rose by ~3% QoQ (versus our 1% estimate) due to increase in the cost of fly ash, royalty charges and lower consumption of pet coke. Volume growth concerns are likely to persist due to the mining ban at two of the company’s plants in the eastern region since October 10, 2014 and a potential delay (versus our initial estimate) in the 3.3mtpa expansion in the east. Ergo, we prune our volume estimates by ~2%/3% for CY14/CY15. Operating costs are likely to further increase as the company is likely to source clinker from external sources to make up for the mining ban in the eastern region. Factoring in the same, we prune our EBITDA estimate for CY14/CY15 by 10%/6%. With a revised target price of INR1,498 (INR1,590 earlier), we maintain ‘HOLD’. We continue to value ACC at 11x CY15E EV/EBITDA factoring in ~21% CAGR in EBITDA over CY13-15E, improved demand outlook and chances of further improvement in industry capacity utilisation in CY16, given limited capacity additions.

Near-term volume, cost concerns persist

Volumes grew just 1% YoY and the disappointment is likely to continue in the near term given the mining ban at two of its plants in the east. Assuming no benefits of capacity expansion in the east in CY15, we prune our volume estimates by ~2%/3% for CY14/CY15. Cost/t was above estimates due to increase in raw material and energy costs and the same is slated to further move up (in the near term) as the company will have to buy clinker from external sources to protect market share in the East region.

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https://www.edelweiss.in/research/ACC--Volumes,-Costs-Disappoint;-Result-Update-Q3CY14/27406.html