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ACC Limited (ACC.IN)
UW: 2QCY11 results; strong but substantial?
EBITDA at INR5.8bn was up 3.9% q-o-q on the back of
improved realisations and reduced cost
We forecast margin contraction, lead by increased coal and
petroleum prices with 9.4% volume growth for CY11e
We retain our UW on ACC and target price of INR970,
continue to prefer UTCEM over ACC/ACEM
Strong result; but unlikely to prevent margin contractions
ACC reported EBITDA of INR5.8bn (up 5.2% y-o-y or 3.9% q-o-q) exceeding the
market expectation of INR5.3bn by c10%.
Realisation /ton edged up sequentially by c1.7% to INR3,949 as opposed to sales
volumes, which posted a sequential decline of c3.7%. As a result, net revenue stood at
INR24.3bn with c5% q-o-q de growth. However; net revenue was up by c12.3% y-oy, with meaningful volume additions from new production lines at Chanda
(Maharashtra) in the current year.
Cost/ton declined c3.7% during the quarter, following lower raw material costs and
other costs. Raw materials cost/ton declined surprisingly by c36% q-o-q while power
& fuel cost/ton increased by 22.4% q-o-q and freight costs rose by 5.4% q-o-q.
Despite sequential improvement in EBITDA margin to 23.8%, ACC’s bottom line
shrunk by c4% on reduced other income and increased interest and taxes.
Not yet improving, but unlikely to get much worse either…
In our note, ‘Indian cement sector: In the doldrums’, 13 July 2011, we argued that the
outlook for the cement sector was unlikely to improve in a hurry, and that the negatives
we highlighted had been factored into the market consensus. For ACC specifically, we
expect costs to increase over the next couple of quarters, following recently raised diesel
prices and normal inflation in other costs amid cement pricing pressures following the
seasonally weaker monsoon season.
Stay UW with TP of INR970; prefer UTCEM over ACC/ACEM
We value ACC using blended EV/EBITDA, EV/GCI methodology, and justified PE
multiple to derive our TP of INR970 implying an Underweight rating. In our cement
universe, we prefer UTCEM over ACC and ACEM, as we expect the valuation discount
of UTCEM to ACC/ACEM to reduce. Risks: Greater-than-expected ramp-up of new
capacity in Maharashtra may add a positive volume surprise to our estimates.
Valuation and risks
We value ACC using blended EV/EBITDA, EV/GCI methodology, and justified PE multiple. We use
EV/EBITDA multiple of 7.1x (which is a 10% discount to its 5 year average) to derive an EV/EBITDA
based value of INR960. We use a justified multiple of 2.2x to derive its EV/GIC based value of
INR1,146. We apply justified PE multiple of 11.5x to 2013e and discount it to derive PE based value of
INR832. At INR995.75, our target price of INR970 offers 0.9% potential return including dividend yield
of 3.5% which is below the Neutral band for non-volatile Indian stocks implying an Underweight rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC Limited (ACC.IN)
UW: 2QCY11 results; strong but substantial?
EBITDA at INR5.8bn was up 3.9% q-o-q on the back of
improved realisations and reduced cost
We forecast margin contraction, lead by increased coal and
petroleum prices with 9.4% volume growth for CY11e
We retain our UW on ACC and target price of INR970,
continue to prefer UTCEM over ACC/ACEM
Strong result; but unlikely to prevent margin contractions
ACC reported EBITDA of INR5.8bn (up 5.2% y-o-y or 3.9% q-o-q) exceeding the
market expectation of INR5.3bn by c10%.
Realisation /ton edged up sequentially by c1.7% to INR3,949 as opposed to sales
volumes, which posted a sequential decline of c3.7%. As a result, net revenue stood at
INR24.3bn with c5% q-o-q de growth. However; net revenue was up by c12.3% y-oy, with meaningful volume additions from new production lines at Chanda
(Maharashtra) in the current year.
Cost/ton declined c3.7% during the quarter, following lower raw material costs and
other costs. Raw materials cost/ton declined surprisingly by c36% q-o-q while power
& fuel cost/ton increased by 22.4% q-o-q and freight costs rose by 5.4% q-o-q.
Despite sequential improvement in EBITDA margin to 23.8%, ACC’s bottom line
shrunk by c4% on reduced other income and increased interest and taxes.
Not yet improving, but unlikely to get much worse either…
In our note, ‘Indian cement sector: In the doldrums’, 13 July 2011, we argued that the
outlook for the cement sector was unlikely to improve in a hurry, and that the negatives
we highlighted had been factored into the market consensus. For ACC specifically, we
expect costs to increase over the next couple of quarters, following recently raised diesel
prices and normal inflation in other costs amid cement pricing pressures following the
seasonally weaker monsoon season.
Stay UW with TP of INR970; prefer UTCEM over ACC/ACEM
We value ACC using blended EV/EBITDA, EV/GCI methodology, and justified PE
multiple to derive our TP of INR970 implying an Underweight rating. In our cement
universe, we prefer UTCEM over ACC and ACEM, as we expect the valuation discount
of UTCEM to ACC/ACEM to reduce. Risks: Greater-than-expected ramp-up of new
capacity in Maharashtra may add a positive volume surprise to our estimates.
Valuation and risks
We value ACC using blended EV/EBITDA, EV/GCI methodology, and justified PE multiple. We use
EV/EBITDA multiple of 7.1x (which is a 10% discount to its 5 year average) to derive an EV/EBITDA
based value of INR960. We use a justified multiple of 2.2x to derive its EV/GIC based value of
INR1,146. We apply justified PE multiple of 11.5x to 2013e and discount it to derive PE based value of
INR832. At INR995.75, our target price of INR970 offers 0.9% potential return including dividend yield
of 3.5% which is below the Neutral band for non-volatile Indian stocks implying an Underweight rating.
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