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CMP: Rs.1,099.75
April 29, 2011
ACC, a leading cement player declared its Q1CY11 results. It reported consolidated revenues of Rs.2,556.2 cr up by 14.1% Y-oY on the back of higher volumes and realisations. EBIDTA margins for Q1CY11 contracted by 630 bps Y-o-Y to 22.9%. Net Profit margins for Q1CY11 fell by 380 bps Y-o-Y to 13.7%. Margins were lower on account of higher input costs. Quarterly Financials Consolidated
Particulars Net Sales Other operating income Total Operating Income Expenditure (Increase) / Decrease In Stock In Trade & WIP Consumption of Raw Materials Purchase of Traded Cement & Other Products Employees Cost Power & Fuel Outward Freight charges on cement Other Expenditure Excise Duties (Net) Total Opex Operating Profit OPM % Other Income Interest Expenses Depreciation Profit before Tax PBTM % Tax Effective Tax Rate % Profit After Tax PATM% Minority Interest Share of earnings of associates Net Profit NPM % Equity Capital EPS Q1CY11 2556.2 28.0 2584.2 -5.9 470.1 45.2 121.9 482.6 343.3 541.0 1998.1 586.1 22.9% 41.4 25.3 120.9 481.2 18.8% 132.9 27.6% 348.3 13.6% 0.0 1.9 350.2 13.7% 188.0 18.6 Q1CY10 2240.3 34.9 2275.2 31.8 334.4 37.1 98.4 394.8 274.1 450.3 1621.0 654.2 29.2% 26.1 13.6 103.1 563.6 25.2% 171.7 30.5% 391.9 17.5% 0.0 1.0 392.9 17.5% 187.9 20.9 % Chg 14.1% -19.8% 13.6% -118.5% 40.6% 21.7% 23.8% 22.2% 25.2% 20.1% 23.3% -10.4% 58.8% 85.8% 17.3% -14.6% -22.6% -11.1% 87.5% 93.9% -10.9% -21.9% 0.0% -10.9% Q4CY10 2092.4 133.1 2225.5 -94.0 416.1 45.8 158.1 454.6 357.7 549.0 1887.4 338.2 16.2% 24.3 13.7 119.7 228.9 10.9% -17.8 -7.8% 246.7 11.8% 0.1 2.2 248.8 11.9% 188.0 13.2 % Chg 22.2% -79.0% 16.1% -93.7% 13.0% -1.4% -22.9% 6.1% -4.0% -1.5% 5.9% 73.3% 70.5% 84.4% 1.0% 110.2% -848.0% 41.2% -40.0% -12.3% 40.7% 0.0% 40.7% Rs.Cr. CY10 8258.8 262.7 8521.5 -54.2 1451.0 149.0 498.2 1610.2 1125.8 1938.3 6718.2 1803.3 21.8% 97.9 57.9 427.7 1415.4 17.1% 341.4 24.1% 1074.1 13.0% 0.0 3.5 1077.6 13.0% 188.0 57.3
Rs.Cr. CY10 4.83 21.3 3624.9 7717.3 258.4 7975.8 -56.6 1123.2 117.6 461.9 1598.7 1070.3 1848.2 6163.3 1812.4 23.5%
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Interest Expenses Depreciation Profit before Tax PBTM % Tax Effective Tax Rate % Net Profit NPM % Equity Capital EPS
25.3 112.5 483.4 20.2% 132.7 30.5% 350.7 14.6% 188.0 18.7
12.7 93.5 576.9 27.4% 171.7 30.5% 405.2 19.3% 187.9 21.6
13.7 111.9 238.6 12.2% -17.3 -7.24% 255.9 13.1% 188.0 13.6
98.5 56.8 392.7 18.9% 341.4 23.36% 1120.0 14.5% 188.0 59.6 Rs.Cr.
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Cost per tonne analysis Consumption of Raw Materials Employees Cost Power & Fuel Outward Freight charges on cement Other Expenditure Total Cost EBIDTA (excluding other operating income) EBIDTA (including other operating income)
Other income rose by 57.2% y-o-y to Rs.41.5 cr. Interest charges for Q1CY11 were higher by 98.5% y-o-y to Rs.25.3 cr. Depreciation rose by 20.3% y-o-y to Rs.112.5 cr. Effective tax rate stood at 30.5%. On the back of muted realisation growth and higher costs, ACC reported contraction of 470 bps y-o-y in PAT margins to 14.6% in Q1CY11. Other Updates: New clinkering line with a capacity of 7,000 tonnes per day at Chanda in Maharashtra has been commissioned in Q1CY11. The 25 MW captive power plant at Chanda was commissioned in Q3CY10 while the second unit of 25 MW has been commissioned in Chanda in Q1CY11. At the end of these project expansions, ACC will have a total cement capacity of 30 mn tones and captive power capacity of 346MW. Gradual ramp up of commissioning of capacities (set up in CY10 and CY11) could result in an above average volume growth for ACC in CY11. ACC Concrete Ltd, a wholly owned subsidiary of ACC has acquired 40% stake in Aakaash Manufacturing Private Ltd for a total consideration of Rs.5.5 cr, a company engaged in manufacturing of Ready Mixed Concrete. Outlook: The management believes that the pressure on selling prices could continue in the near term. Some bottlenecks faced by the industry like consistent supply of major inputs like coal, slag and power are likely to continue. However, it maintains a healthy outlook for overall growth in demand of cement and believes that ACC would be able to service the enhanced demand with its enhanced capacity. Concerns Additional capacities coming on stream could lead to decline in cement prices and in turn lower realisations. There could also be a pressure on margins, which may have to be offset by control in costs. Rise in input costs like coal, slag, fly ash and gypsum could put pressure on margins. ACC is dependent to a large extent on Coal India for supply of coal. Prices of coal have recently been revised upwards and there are supply constraints of coal for the cement sector. Conclusion ACCs Q1CY11 results were above expectation with a positive surprise on realisations and lower fuel costs. The current realization of cement industry is at peak level and is unlike to sustain given the onset of monsoon and arrival of new capacities as realisations have already corrected in many parts of the country in a fortnight. Though cement prices have been hiked across all regions, the sustainability of cement prices remains uncertain in medium/long term as the cement demand growth FY11YTD ~5% has now emerged as bigger concern than the overcapacity in the system. Also the 30% coal price hike taken by Coal India in Feb 2011 is yet to reflect in ACCs numbers. Though cement prices moved up sharply during Q1CY11 on supply discipline by cement players, these prices could remain firm for another quarter. But with the impact of incremental supplies as well as monsoon, there could be softening in cement prices in later part of CY12. ACC is a pan-India player and hence is insulated to a large extent from the risks of slow-down in demand and price collapse in any particular region. Cement prices have been hiked in late Feb-March 2011 in several parts of the country. This would be crucial considering that ACCs capacity would rise by an additional 3 million tons. Given the situation of potential oversupply and expected pressure on margins, ACC could face tough times especially in the south. In CY11, ACC could have the benefit of higher capacity that will go on stream in stages and a higher CPP capacity (resulting in power and fuel savings). In our earlier report, we had stated that ACC could trade in the Rs.824-996 band in the next one quarter. Post the issue of the report, the stock touched a low of Rs.942 on February 11, 2011 and a high of Rs.1,142.5 on April 6, 2011.
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We are revising our CY11 sales estimates upwards but revised margins downwards on account of cost pressures. At the CMP, the stock is trading at 17.4x CY11RE EPS of Rs.63.4. We think that the stock could trade in the Rs.1,014 (16x CY11RE EPS) to Rs.1,205 (19x CY11RE EPS) in the coming quarter. Consolidated Financials
Particulars (Rs in Crs) Operating income PBIDT PBIDTM (%) Profit after Tax PATM (%) EPS P/E (x) CY08 7719.7 1665.0 21.6% 1088.6 14.1% 57.9 19.0 CY09 8479.6 2630.8 31.0% 1563.9 18.4% 83.2 13.2 CY10 8258.8 1803.3 21.8% 1077.6 13.0% 57.3 19.2 CY11 (OE)* 8858.0 2145.2 24.2% 1291.3 14.6% 68.7 16.0 CY11 (RE)* 9274.3 2051.4 22.1% 1190.3 12.8% 63.4 17.4
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