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ACC's EBITDA came below estimates with EBITDA margin contraction of 386bps y.o.y. to 21.6%
in 2Q11. Driven by 12.5% y.o.y. volume growth, sales grew 17%. While ACC's balance sheet
remains impressive with net cash of Rs11.1bn, we remain cautious on sector outlook.
Revenue growth at 17% driven by volume recovery
ACC recorded a revenue growth of 17.2% which was driven by 12.5% volume growth and
5.4% realisation improvement. Cement volumes sold stood at 5.93mmt.
Despite the industry operating at 75-76% capacity utilisation, cement prices in most markets
scaled to historic high levels in Q211, which resulted in ACC overall realisation at Rs4,042/mt.
These realisations are the highest ever recorded by the company, and 5.4% higher than the
2Q10 levels of Rs3,834/mt.
EBITDA per mt at Rs.923, with a y.o.y EBITDA decline of 1%
ACC's EBITDA/mt which slipped to around Rs342/mt in 3Q10, have now scaled up further
from Rs906/mt in 1Q11 to Rs923/mt in 2Q11. Clearly, the improvement is largely backed by
the strong pricing improvement in the cement markets.
EBITDA stood at Rs5.5bn in 2Q11. Production costs went up 11.8% yoy to Rs3,119/mt in
2Q11 due to a steep rise in coal prices, higher grid tariffs and rising freight rates. However,
raw material costs declined 3% to Rs.672/mt in 2Q11. Power costs increased 28.4% yoy to
Rs965/mt, mainly due to a substantial increase in coal and pet coke prices. Freight and
handling costs increased 14.7% yoy to Rs586/mt on higher freight rates.
On a sequential basis, cost per tonne grew 4.7% (Rs141/mt) from Rs2,978 in 1Q11, but
realisations grew by Rs158/mt, hence improving EBITDA/mt sequentially.
ACC's PBT declined by 4% y.o.y. PAT before extraordinary items and minority interest
declined 6.8% yoy to Rs3.3bn in 2Q11. Adjusting for minority interest, PAT declined 6.1%
yoy.
However we remain concerned on low industry utilisation rates
The cement industry closed FY11 with a capacity of 302mmt, and a domestic demand of
212mmt. We expect the cement capacity to scale to 325mmt by 2012, but the demand
conditions in FY12 so far indicate only flat levels of growth. As a consequence, we expect the
industry to operate at 75% capacity utilisation levels for the next 2 years.
We believe, such levels of capacity utilisations in a fragmented industry like India (with over
40 cement players) does expose the sector to pricing competition.
ACC trades at a EV/mt of $134 which is a 20% premium to replacement cost. Given these
valuations, and the risk to near term earnings, we maintain our sell recommendation. ACC's
balance sheet remains very impressive with net cash of Rs11.1bn, which positions it ideally to
face any downturn in industry margins, and also gives it opportunity to resort to acquisitions if
available.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ACC's EBITDA came below estimates with EBITDA margin contraction of 386bps y.o.y. to 21.6%
in 2Q11. Driven by 12.5% y.o.y. volume growth, sales grew 17%. While ACC's balance sheet
remains impressive with net cash of Rs11.1bn, we remain cautious on sector outlook.
Revenue growth at 17% driven by volume recovery
ACC recorded a revenue growth of 17.2% which was driven by 12.5% volume growth and
5.4% realisation improvement. Cement volumes sold stood at 5.93mmt.
Despite the industry operating at 75-76% capacity utilisation, cement prices in most markets
scaled to historic high levels in Q211, which resulted in ACC overall realisation at Rs4,042/mt.
These realisations are the highest ever recorded by the company, and 5.4% higher than the
2Q10 levels of Rs3,834/mt.
EBITDA per mt at Rs.923, with a y.o.y EBITDA decline of 1%
ACC's EBITDA/mt which slipped to around Rs342/mt in 3Q10, have now scaled up further
from Rs906/mt in 1Q11 to Rs923/mt in 2Q11. Clearly, the improvement is largely backed by
the strong pricing improvement in the cement markets.
EBITDA stood at Rs5.5bn in 2Q11. Production costs went up 11.8% yoy to Rs3,119/mt in
2Q11 due to a steep rise in coal prices, higher grid tariffs and rising freight rates. However,
raw material costs declined 3% to Rs.672/mt in 2Q11. Power costs increased 28.4% yoy to
Rs965/mt, mainly due to a substantial increase in coal and pet coke prices. Freight and
handling costs increased 14.7% yoy to Rs586/mt on higher freight rates.
On a sequential basis, cost per tonne grew 4.7% (Rs141/mt) from Rs2,978 in 1Q11, but
realisations grew by Rs158/mt, hence improving EBITDA/mt sequentially.
ACC's PBT declined by 4% y.o.y. PAT before extraordinary items and minority interest
declined 6.8% yoy to Rs3.3bn in 2Q11. Adjusting for minority interest, PAT declined 6.1%
yoy.
However we remain concerned on low industry utilisation rates
The cement industry closed FY11 with a capacity of 302mmt, and a domestic demand of
212mmt. We expect the cement capacity to scale to 325mmt by 2012, but the demand
conditions in FY12 so far indicate only flat levels of growth. As a consequence, we expect the
industry to operate at 75% capacity utilisation levels for the next 2 years.
We believe, such levels of capacity utilisations in a fragmented industry like India (with over
40 cement players) does expose the sector to pricing competition.
ACC trades at a EV/mt of $134 which is a 20% premium to replacement cost. Given these
valuations, and the risk to near term earnings, we maintain our sell recommendation. ACC's
balance sheet remains very impressive with net cash of Rs11.1bn, which positions it ideally to
face any downturn in industry margins, and also gives it opportunity to resort to acquisitions if
available.
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