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EARNINGS REVIEW
ACC (ACC.BO)
Sell Equity Research
In line with expectations; strong volumes but higher fuel costs
What surprised us
ACC reported 2QCY11 standalone net income of Rs3.3 bn (-6% yoy, -4%
qoq), 6% above GS and 9% above Bloomberg consensus estimates on
account of higher than expected other income. 1QFY12 revenue at Rs24 bn
(+17% yoy and -1% qoq), was 4% below our estimate – while volume
growth was strong at +13% yoy, the sequential increase in realizations was
lower than expected at 4% (vs. GSe: 6% qoq). To put things in context,
Ultratech, the other pan India player reported strong realization growth of
6% qoq. While the top line grew by 17% yoy, led by strong volume growth,
it was more than offset by higher costs – EBITDA at Rs5.8 bn, was down
2% yoy, primarily on higher fuel costs (+45% yoy). EBITDA margins
contracted 468 bps yoy, with EBITDA/ton at Rs978 vs. Rs1,128 in 2QCY10.
On a sequential basis, margins were flat qoq at 24%.The company’s board
approved an interim dividend of Rs11 per equity share.
What to do with the stock
In our view, while ACC has been able to achieve strong volume growth as
the new capacities ramp up (in 1HCY11), we believe that it would be tough
for the company to sustain this growth, given the muted macro demand
environment. As highlighted earlier, a bullish volume outlook does not
translate into a commensurate margin recovery due to sustained cost
pressures and lower realizations. At 108% EV/RC (EV/ton of US$136), the
stock is trading above mid-cycle levels of 100% EV/RC. We reiterate our
Sell rating with a 12-m EV/RC-based TP of Rs934, implying 6% potential
downside. Key risks include demand revival and lower than expected
costs. We are fine tuning our CY11-CY13 EPS estimates by 1%-2%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
ACC (ACC.BO)
Sell Equity Research
In line with expectations; strong volumes but higher fuel costs
What surprised us
ACC reported 2QCY11 standalone net income of Rs3.3 bn (-6% yoy, -4%
qoq), 6% above GS and 9% above Bloomberg consensus estimates on
account of higher than expected other income. 1QFY12 revenue at Rs24 bn
(+17% yoy and -1% qoq), was 4% below our estimate – while volume
growth was strong at +13% yoy, the sequential increase in realizations was
lower than expected at 4% (vs. GSe: 6% qoq). To put things in context,
Ultratech, the other pan India player reported strong realization growth of
6% qoq. While the top line grew by 17% yoy, led by strong volume growth,
it was more than offset by higher costs – EBITDA at Rs5.8 bn, was down
2% yoy, primarily on higher fuel costs (+45% yoy). EBITDA margins
contracted 468 bps yoy, with EBITDA/ton at Rs978 vs. Rs1,128 in 2QCY10.
On a sequential basis, margins were flat qoq at 24%.The company’s board
approved an interim dividend of Rs11 per equity share.
What to do with the stock
In our view, while ACC has been able to achieve strong volume growth as
the new capacities ramp up (in 1HCY11), we believe that it would be tough
for the company to sustain this growth, given the muted macro demand
environment. As highlighted earlier, a bullish volume outlook does not
translate into a commensurate margin recovery due to sustained cost
pressures and lower realizations. At 108% EV/RC (EV/ton of US$136), the
stock is trading above mid-cycle levels of 100% EV/RC. We reiterate our
Sell rating with a 12-m EV/RC-based TP of Rs934, implying 6% potential
downside. Key risks include demand revival and lower than expected
costs. We are fine tuning our CY11-CY13 EPS estimates by 1%-2%
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