Hurt by mining restraints ACC ::HDFC Sec, report

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Hurt by mining restraints ACC reported multi-year low profitability for 4QCY14 (EBITDA/t at Rs 300/t vs. estimated Rs 364/t). This was on account of 1) lower volumes (5.8 mT,-1.5% YoY) and 2) higher freight costs (+9.1% YoY, +8% QoQ). Both can be attributed to a court mandated shutdown of limestone mining operations at its Chaibasa (JHK) and Bargarh (Orissa) units. Consequently, ACC shipped clinker from other plants (likely Chhattisgarh) to make up for the shortfall in a lucrative market (East). Mining continues to remain suspended at both plants. ACC suffers from a lack of profitability and volume triggers. This is also painfully evident from the flat volumes reported since CY11, significantly slower than peers. Further, its legacy operations and inefficient cost structure make it vulnerable to prolonged price slumps. Thus, in our view, it is unattractive despite the cheap valuations (US$130/t). Maintain SELL with a revised TP of Rs 1,308 (8.5x CY16 EV/EBITDA, US$105/t).  4QCY14 highlights: EBITDA at Rs 1.79bn was below estimates due to mining restraints. ACC’s adjusted PAT was above our estimates (Rs 1.14bn vs est Rs 0.74bn). The company reversed tax expenses relating to prior periods (Rs 1.96bn) and subsequently reported PAT of Rs 3.24bn (+16.4% YoY, +57.9% QoQ).  Updates on key projects: Jamul clinker (2.79 mT) is likely to be operational in CY15, along with a grinding unit in Sindri (1.35 mTPA). This represents a net capacity addition of ~4 mTPA (old kiln at Jamul (0.8 mTPA) to be decommissioned) resulting in 34 mTPA capacity by CY15 end.  Outlook and view: While we share the optimism on revival of growth, current signs on the ground do not instill much confidence. Cement stocks are valuing-in a steep recovery in demand and sharp improvements in profitability. However, at current valuations, risks of a prolonged demand slump are not priced in. Further, ACC is behind peers in growth/profitability traction which shapes our negative view on the stock.

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011128