Research Report On ACC Cement

Key Stock Fundamental:NSE CODE BSE CODE INDUSTRY FACE VALUE FF MKT CAP (CR) VOLUME P/E Wtd. AVG PRICE ACC 500410 CEMENT 10 9944 15808 16.3 975.37 EV 52 WEEKS H/L (Rs) DIVIDEND (%) BETA BV/SHARE MKT CAP (%) MKT CAP/SALES(X) R-SQUARE 157653 1144/800 305 0.59 363.26 18215.14 2.2 0.51

Table:-1 About ACC:ACC was formed in the year 1936 by getting 10 cement companies together like Tatas, Khataus, Nixon.The companys core business is cement production and has its presence in pan india. ACC has 14 cement manufacture plant all over india and is ranked among the top of all cement companies. On 1 September 2006 the name of The Associated Cement Companies Limited was changed to ACC Limited. The company is the only cement company to get Superbrand status in India. ACC's operations are spread throughout the country with 15 modern cement factories, 26 Ready mix concrete plants, 21 sales offices, and several zonal offices. It has a workforce of more than 10000 persons and a countrywide distribution network of over 9,000 dealers. Key Highlight: ACC is no 1 cement manufacturing company in India and it has a manufacturing capacity of 27mt pa in 2010. The company has 12% market share due to their strong marketing channel. Its market share in south, west, north, central and east region in India stands at around 25%,23%, 19%, 17% and 16% respectively which helps reduce the risk of geographical price volatility, demand and supply. The Wadi cement plant of ACC Ltd. in Gulbarga district has the world's largest single kiln that has a capacity of producing 12,500 tonnes a day. Presently ACC has its own lime stone mine and captive power plant which will helps reduce operating expenses. ACC recently launchd new eco friendly cement named Costal+ which will protect houses from extreme weather. Risk: Continuous increase in the cost of power, fuel, coal and railway fright charges. Cyclical nature of cement business.

Key Financial Indicator:21 00 713 7 7 .3 -3 6 .8 110 82 -3 .4 17 1 .1 85 120 1 0 .1 -3 .2 09 1 .0 38 5 .6 95 1 .0 83 1 7 2 5 1 .9 74 32 .1 20 09 822 07 1 .2 02 240 64 3 .2 93 2 .4 83 107 6 6 .3 3 .4 28 1 .4 82 8 .5 58 1 .1 08 2 7 4 9 2 .3 96 22 .7 20 08 788 2 2 .7 190 89 2 .0 15 117 2 2 .9 -1 .7 5 1 .7 43 6 .6 42 7 .4 2 5 4 0 2 .5 48 12 .8

In o e cm In o eGo th cm r w E ID A B T E ID AGo th B T rw E ID AM r in(% B T ag ) PT A P TGo th A rw P TM r in A ag C a g inGo sb c hne r s lo k ES P P (x /E ) R N (% OW ) R C (% OE ) R E(% O ) P V(x /B )

Share Holding Pattern as on 30/12/2010

Stock price chart with indices:-

Comparative analysis:-

Q1FY2011 Performance analysis (Standalone):-

m illion Net Sale Other Operating Incom e Total Operating incom e Net Raw m aterial cost (%) of sales Em ployee cost (%) of sales Power and fuel (%) of sales Fright charge (%) of sales Depriciation (%) of sales Total Exp. (%) of sales Operating profit OPM(%) PBT Interst Net profit NPM(%) EPS (Rs)

Q1FY11 23981.7 253.7 24235.4 4181.6 17.44 1122.8 4.7 4784.5 20.0 3442.5 14.4 1125.06 4.7 19562.42 81.572418 4671.06 19.5 5086.5 252.9 3506.6 14.6 18.68

Q1FY10 21018.1 344.6 21362.7 2746.5 13.1 895.8 4.3 3925.5 18.7 2752.5 13.1 935.2 4.4 15731.1 74.8454 5631.68 26.8 5895.9 127.4 4051.2 19.3 21.59

Y-o-Y (%) 14.1 -26.4 13.4 52.3 25.3 21.9 25.1 20.3 24.4 -17.1 -27.3 -13.7 98.5 -13.4 -24.1

Top line and Bottom Line analysis:ACC Q1FY2011 operating income declined by ~13% to Rs 24235.35 million from Rs 21362.78 million last year Q1. This decline can be attributed to the fall in despatches quantity and decline despatches due to monsoon and flood in the country. Net profit of the company decreased by ~13% to Rs 3506.64 million from Rs. 4051.2 million. ACC margin declined due to decreased realisation (Rs/tonne) and increase in raw material costs like slag, fly ash, deprication, fuel charges, employee cost and stock adjustment. Companys substantial presence in all over India did not effect in realisation.

Pressure of Higher raw material costs on cement prices:Despite increased realization the company faced margin pressure in this quarter due to high cost of coal, slag, fly ash. Power and fuel costs are also a reason for cost pressure. Global fuel prices increased by~40% to reach US$ 110. Global coal price also increased by~30% to US$123/tonne. The price of domestic coal also increased by~21% in the month of March. ACC OPM margin fell by ~7% to 24.2%. Operational Analysis:For Q1FY2011, ACC posted 14.1% y-o-y growth in its net sales to Rs 2,3981.6 million, aided by growth in volumes and higher realisations. Realisations were higher during the quarter on account of price hikes of Rs 3040 per bag carried out by cement manufacturers across the country. Dispatch quantity also increased to 2.18 million tones from 1.94 million tonnes. Cumulative dispatch quantity for first quarter was 6.22 million tonne in comparison with last year it was 5.54 million tones. Operating profit of ACC in Q1FY2011 declined by 17% to Rs 4671.068 million from Rs 5631.689 million. Effective tax rate declined by ~200 bps to 27% from ~29%. OPM declined by ~ 700 bps to 19.2 % from ~ 26% last year Q1. NPM dipped by ~4% due to increased raw material cost, power and fuel cost. Q1Y2011 EPS was Rs 18.68 in comparison to last year ( Rs 21.58). Per Tonne Analysis:Q1FY11 realisation/tonne improved by 15.3% to Rs 3896 from Rs 3496 in Q1FY10. However raw material cost/tonne increased significantly by 49% to Rs 593 from Rs 398 due to increased slag, fly ash. Power and fuel cost/tonne was up by ~22% in comparison to last years same quarter. But it decreased in comparison with Q4FY10 due to effective use the captive power. Operating profit/cost decreased by 17% in comparison to last year but was up o Rs 818/tonne from Rs 373/tonne in last quarter. Net profit realisation also went down by ~13% due to higher cost pressure but realisation improved Q-o-Q due to price increased to Rs 564 in the present quarter from Rs 223 in the last quarter. Parameter (Rs) Q1FY11 Q1FY10 Q4FY10 Y-o-Y (%) Realisation/tone 3896 3379 3496 15.3 Raw materialcost/tone 593 398 504 49.0 power and fuel cost/tone 769 631 806 21.9 Fright charge cost/tone 553 442 493 25.1 Dep cost/tone 181 150 200 20.7 Other expanses/tone 799 668 1013 19.6 OP/ cost 751 905 373 -17.0 Net profit/tone 564 651 223 -13.4

Volume in MMT:Parameter (M M T) 11- M ar C ement C apacity 7 C ement P roducation 6.22 C apacity Utilisation (% ) 8.9 8 C ement Despatch 6.22 10- M arY-o -Y (% )10-Dec Q - o-Q (% ) FY 10 6.3 11.1 7 0 26.17 5.54 12.3 5.65 10.1 2 1.2 87.9 80.7 81.0 5.56 11.9 5.58 11.5 21.17 22.16 21.2
95.8 21.36 FY 09 Y -o-Y (% ) 18.10

0
-0.9

Increased use of captive power to improve operating margin:Captive power has improved ACCs cost competitiveness and quality of power. Share of captive power has increased to ~74% FY10 from ~70% FY09. Over the years, ACC has improved its efficiency, owing to which its power consumption/tonne of cement has declined. Financial Highlights:ACC sale declined by 3.86% to Rs 77173.3 million from Rs 80272.0 million. Realisation (Rs/tonne) decreased by ~3% to Rs 3645 from Rs 3758. This realization decreased due to delivery quantity that came down from 21.36 mt to 21.17mt and demand. Operating expenses increased by 10.70% to Rs 66128.1 million from Rs 59732.3 million in comparison to last year. Operating expenses increased due to raw material consumption, power and fuel, machinary repair and change in stock. Raw material cost increased by 26% over the last year. The company increased the slag price and purchased the clinker from out side. Raw material Realisation (Rs/tone) increased by 33% over the last year. Power and fuel cost has marginally increased by 3.83%. But anyhow ACC was able to bring down the fuel costs under control both imported and coal. The increase in purchased power tariff led to increase in costs. Realisation cost/ tonne increased only by 10% in comparison with last year and its happened due to decrease in delivery quanity. Loading and transport charges surged by 10% due to increased clearing and fright charges. Excise Duties increased by 36.23% in 2011, due to increase in excise duty rate on captive consumption of clinker from Rs 300 per ton to Rs 375 per ton. Effective interest rate decreased by~ 3% due to Repayment of Rupee Term loan of Rs 50 cr. Operating profit (EBITDA) declined by 33% to Rs 1812.2 million from last year Rs 2644.6 million. Depreciation value has increased by 14.8% from last fiscal year. The increase in depreciation is on account of asset capitalization of Rs 1,3336.7 million as compared to Rs 1,0057.1 million in the previous year. During the current year, the company started the Bargarh capacity

expansion, Wadi capacity expansion, installation of grinding units at Kudithini and Thondebhavi and other capitalization. Net profit of ACC has declined by 30% to Rs 11200.1 million from Rs 16067.3 million. Expansion:The Wadi cement plant of ACC Ltd. in Gulbarga district has the world's largest single kiln that has a capacity of producing 12,500 tonnes a day. For this project ACC had invested Rs. 900 crore for the second phase of the expansion of one of the largest cement plants in Asia. The total capacity of the plant of both the old and new units was five million tonnes a year. While 2 million tonnes of cement was being produced in the old plant, the modern fully automated second unit of the plant produces three million tonnes which will achive cement production 30mtpa. ACC cement company is setting up a mega cement project of capacity 3 mtpa of cement at Ghughus in the Chandrapura district of maharastra at a cost of abot Rs 1500 Cr. It is a environment friendly plant. Here company also setting up Captive power plant (CPP) of 25 MW of capacity to cater to project's power requirment. ACC started it's wind energy farm near Satra in Maharastra. These wind farm produce 2.5 MW power which will supply power to ACC Thana complex and Bulk Cement Corporation (BCC) a subsidiry of ACC. ECAPL a whole subsidary of ACC has added to produce 4 laks tone of slag cement in addition to Ground Granulated Blast Furnace Slag. Kuditnini Grinding plant inaugurated in Karnataka with capacity of 1.1mtpa PSC. Acquisition:ACC are not running after small companies. The locations and position of companies are of main interest for them. Acquiring 45% stake in Asian Concrete in Himachal Pradesh is a logistic gain for ACC. The acquisitions are small but interesting from the point of view of distribution cost, logistics cost and market rational. ACC Mineral Limited entered into a JV with Madhya Pradesh State Mining Corporation of four coal block. Priliminary studies is conducting and some Govt clearence is in progress. Future Plane:The company would be focusing on brand promotion in order to derive premium for its cement products with an objective of improving margins in future ACC company is focusing on development of product which will increase the use of various application and development of application oriented cement based cementitious material. Use of waste or byproducts in cement manufacture as an alternative materials. Cement Industry Scenario:India is the world's second largest producer of cement after China. During September 2010, the cement production touched 12.54 million tonnes (MT), while the cement despatches quantity was 12.56 MT during the month. The total cement production during April-September 2010-11 reached 81.54 MT as compared to 77.22 MT over the corresponding period last fiscal year. Moreover, the government's continued thrust on infrastructure will help the key building material to maintain an

annual growth of 9-10 per cent in 2010. In January 2010, the country will add about 50 million tonne cement capacity in 2010, taking the total to around 300 million tonne.Cement and gypsum products have received cumulative FDI of US$ 1,971.79 million between April 2000 and September 2010. The cement industry is likely to maintain its growth momentum and continue growing at around 8% to 9% in the medium to long term. Government initiatives in the infrastructure sector and the housing sector are likely to be the main growth drivers. BK Birla Group outfit, Kesoram Industries, is setting up a 2,000-tonne a day packaging unit in Medak district of Andhra Pradesh at a cost of US$ 1.76 million. Birla Corporation, Flagship Company of the M. P. Birla Group, is planning to set up a 1 MT cement plant in Assam at an investment of around Rs.450 crore (US$ 99 million). The company has signed a memorandum of understanding (MoU) with the Assam Mineral Development Corporation to this effect. To cater to the growing demands, Everest Industries is planning to set up a new manufacturing facility in East India. The company is looking at acquiring about 22 acres for the facility that will start with the production of roofing materials and other products will be rolled out in a phased manner. Besides, the company is likely to consider setting up a new factory for the fibre cement boards as it is at present utilising almost 100 per cent of its 90,000 tonne of installed capacity across different plants. Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand. Holcim is present in the country through ACC and Ambuja Cements and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India. The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement. Peer Group Comparision:Peer groups have been selected basis of almost same market capitalisation, market share, sales voloum and common business.

Income Income Growth EBIDTA EBIDTA Margin (%) PAT PAT Margin (%) EPS P/E (x) RONW (%) ROCE (%) ROE (%) P/BV (x)

ACC AMBUJA ULTRATECH Dec-10 Dec-10 Mar-10 77173.3 73764.4 70496.8 -3.86 4.4 18120 18236 19711 18.15 22.36 25.5 11200.1 12636.1 10932.4 13.08 15.25 14.14 59.65 8.26 87.82 18.03 17.32 13.17 17.67 17.2 26.62 25 24.39 28.53 17.94 18.32 26.64 3.12 2.99 3.12

Table:-6

Movement of OPM & NPM Quartely

60 50 40 30 5.82 20 13.1 10 0 Sep ' 10 28.82 30.74 24.85 17.25 18.73 14 36.43 21.56 22.71 19.22 14.56 32.37 25.53 26.24 15.15 NPM(%) OPM(%)

35.1

Jun ' 10

Mar ' 10

Dec ' 09

Sep ' 09

Jun ' 09

Mar ' 09

Dec ' 08

Sep ' 08

Comparision of Operating income and EBITDA

10000 8000 6000 4000 2000 0 FY10 FY09 FY08 EBITDA OPERATING INCOME OPERATING INCOME EBITDA

Graph of PAT Networth with RONW

40 35 30 25 20 15 10 5 0 FY07 7 FY08 FY09 FY10 7000 6000 5000 4000 3000 2000 1000 0 PAT (cr) NETWORTH (cr) RONW (%)

Graph of Despatch Quantity and Growth rate

21.17 6 85.6 4.5 90 4 76.75 4.76 5 4 80 20.39 64.3 3.5 4 59.66 70 19.88 3 3 60 3 3 2.57 2.5 50 2 2 2 18.71 40 30.5 1 1.5 30 23 20 20 0 1 20 0 -0.89 0.5 10 -1 0 0 -2 FY07 FY08 FY09 FY10 FY06 FY07 FY08 FY09 FY10 60 3000 50 2500 40 2000 30 1500 20 1000 10 500 0 0 22 Comparison of EPS,DPS and Yield Ratio(%) 6.25 21.36 21.5 21 20.5 EPS (Rs) DESPATCH 20 DPS (Rs) (MT) 19.5 DIVIDEND GROWTH 19 YIELD RATIO 18.5 (%) 18 17.5 17

Comparision of EPS, DPS and Payout Ratio Comparision of EBITDA and EBITDA Margin 90
80 70 60 50 40 30 20 10 0 FY07 FY10 FY08 FY09 FY09 FY10 FY08 35 30 EPS (Rs) 25 DPS (Rs) EBITDA 20 DIVIDEND PAY OUT EBITDA 15 RATIO MARGIN 10 5 0

Comparision of EV, EBITDA and EV/EBITDA Comparision of Networth and Capital Employeed 18000
16000 14000 5746 EV 12000 4928 EBITDA 10000 EV/EBITDA NETWORTH 8000 6932 6000 CAPITAL 6016 4000 EMPLOYEED 2000 7355 0 6469 FY10 6000 7000 8000 20000

12 10 8 FY08 6 4 FY09 2 0 FY10 0

FY07

FY08

FY09

1000 2000

3000 4000 5000

Quarterly sales
2500 2000 1500 Sales 1000 500 0 1688.48 2062.16 2136.28 1983.87 2005.47 2119.86 2081.7 2069.52 1852.56

10000 8000 6000 4000 2000 0

Comparision of EBT and EBT Margin Graph od OP income, PAT and PAT Margin 2500 20 Quarterly net profit
500 450 400 350 300 250 200 FY10 150 100 50 0 405.13 358.93 15 10 280.72 5 0 FY09 100.05 FY08 2000 435.63 1500 1000 500 0 FY10 FY09 FY08 300.39 283.44 485.62 404.76

Sep ' 10

Jun ' 10

Mar ' 10

Dec ' 09

Sep ' 09

Jun ' 09

Mar ' 09

Dec ' 08

Sep ' 08

Sep ' 10 Jun ' 10 Mar ' 10 Dec ' 09 Sep ' 09 Jun ' 09 Mar ' 09 Dec ' 08 Sep ' 08

Quarterly EPS
30 25 20 15 10 5 0 Sep ' 10 Jun ' 10 Mar ' 10 Dec ' 09 Sep ' 09 Jun ' 09 Mar ' 09 Dec ' 08 Sep ' 08 5.32 19.1 21.56 14.94 23.18 25.85 21.54 15.99 15.09

Comparison of EBT & PAT

FY08 EBT PAT

FY09

FY10 0 500 1000 1500 2000 2500

VALUATION:(All Figure in Millions)

P r me aa e r t Sl s ae Sl sG w ( ) ae r t % o h Tt lEp ne oa x e s s Oeai g r ft p r tn Poi O G% P ( ) EI B T EI G w ( ) B r t % T o h Itrs nee t P T eo e ie B b f r xt m Tx a E I c ml s Xno e os / Poi Ae Tx r ft f r a t Aj se NtPoi dut d e r ft Gw r t o h E S R) P( S E SG w Rt ( ) P r t ae% o h F 20 Y0 9 822 07
5 48 5 6 .4

F 21 Y0 0 713 77 - .9 3
6 63 1 3 .5

289 42 277 38 83 4 294 24 67 87 0 107 66 107 66 8 .5 5

194 52 -5 3 .9 112 58 - 6 72 3 .1 5 2 58 6 164 41 31 44 0 120 10 120 10 -0 3 .3 5 .6 9 -0 3 .3

F 21( ) Y0 1E 881 6 6 .7 1. 26 604 6 1 .9 286 0 4 .8 3. 09 136 8 1 .3 2. 06 83 2 .8 142 7 9 .5 4 9 .9 87 0 154 8 2 9 .5 154 8 2 9 .5 1. 25 6. 68 1. 21

Param eter Equity Reserve & Surplus Share Holder Fund's Total Debt Total Capital Employeed Net Fixed Assset Cash Net other Current Asset Investment Net Deferred Tax Asset Total Asset

FY2009 1880 58283 60163 5669 65832 63145 18759 -16041 3462 -3493 65832

FY2010 1880 62815 64695 5238 69933 66452 23874 -20731 3615 3615 69933

FY2011(E) 1880 69272 71152 5078 76230 64633 34485 -23803 4680 -3765 76230

Pr me aa e r t Db/ q iy e t Eu t
RE O RC OE

F 20 Y0 9 09 .0
2 .7 6% 3 .1 6%

F 21 Y0 0 08 .0
1 .3 7% 2 .7 1%

F 21( ) Y0 1E
07 .0 1 .7 7% 2 .0 % 43

PE x / () B / hr V ae S E? B () VE I x T
E / BT A ) V I D( E x E / ae ( ) V l sx S OM ) P ( % NM ) P ( % DS P PE( ) / x Pi eBo Vl e rc / o k au

1 .1 3 30 2 .0 6 .8
7 .5 2 .5 3 .3 2 2 0 1 3 1 .1 3 22 .7

1 .8 8 34 4 .1 1 .9 2
1 .4 0 25 .0 2 .2 1 .5 4 1 3 1 .8 8 32 .1

1 .6 5 38 7 .5 8 .6
7 .6 1 .8 2 4 1 .7 4 1 3 1 .1 5 2 .7

Conclusion:ACC Q1FY2011 result was as expectation and realization also increased. Cement price has been increased in the month of Feb-March this year. This would be considering that ACC capacity would rise up-to 3 million tonnes. But it is expecting that margin pressure will be there in future. At present ACC Stock trading at on EV/EBITDA(x) of 7.6x and EV/EBIT of 8.6x as based on estimation. We are expecting Q2FY2011 EPS will be RS 19.1.