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1QCY2012 Result Update | Cement

April 19, 2012

ACC
Performance Highlights
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Rep Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
1QCY2011
2,398 580 24.2 351

`1,247 Cement 23,405 0.7 1422/917 35,355 10 17,504 5,332 ACC.BO ACC@IN

1QCY2012
2,860 645 22.5 155

4QCY2011 % chg qoq


2,503 442 17.7 470 14.3 46.0 489bp (67.0)

% chg yoy
19.3 11.3 (162)bp (55.7)

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

ACCs 1QCY2012 net profit fell by 55.7% yoy `335cr one-time depreciation charge due to providing depreciation on captive power plants down value method with retrospective effect.

to `155cr on account of a change in the method of from straight line to written

The companys operational performance was in-line with our estimates. ACC reported 19.3% yoy growth in

its net sales to `2,860cr, on account of 9.1% growth in cement volumes coupled with 9.3% growth in realizations. However, OPM declined by 162bp yoy to 22.5% primarily on account of increased coal and freight costs. At
current levels, we maintain our Neutral view on the stock. OPM down 162bp yoy at 22.5%, impacted by cost pressures: Although ACCs realizations rose by 9.3% yoy (1.2% qoq) during 1QCY2012, the company posted a 162bp yoy decline in its OPM to 22.5%. The company, which predominantly uses domestic coal, witnessed a steep 29.6% yoy increase in its per tonne power and fuel costs (on a low base) due to the substantial 30% price hike carried out by Coal India in March 2011. Per tonne freight costs also rose by 13.6% yoy due to higher diesel prices and freight hike carried out by railways during the quarter. Outlook and valuation: We expect ACC to register 14.8% yoy growth in its top line over CY2011-13E, aided by higher volume and realization. The bottom line is expected to post a CAGR of 7.3%. At current levels, the stock is trading at EV/tonne of US$128 on CY2012E capacity (US$121 on CY2013E capacity), which in our view is fair. Hence, we continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 11.8 18.7 19.2

Abs. (%) Sensex ACC

3m 6.4 10.5

1yr (10.1)

3yr 59.4

12.6 103.0

Key financials (Standalone)


Y/E Dec. (` cr) Net sales % chg Adj. Net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/tonne (US$) Installed capacity (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

CY2010
7,717 (3.9) 1,120 (30.3) 23.5 59.6 20.9 3.6 17.9 19.9 2.6 153 27 11.1

CY2011
9,439 22.3 1,325 18.3 20.3 70.5 17.7 3.3 19.4 18.6 2.2 131 30 10.8

CY2012E
10,796 14.4 1,328 (25.1) 19.9 70.7 17.6 3.1 18.0 19.2 1.9 128 30 9.5

CY2013E
12,441 15.2 1,526 53.7 21.2 81.2 15.4 2.8 19.0 23.3 1.6 121 30 7.3 Sourabh Taparia 022-39357800 Ext 6872 Sourabh.taparia@angelbroking.com

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

ACC | 1QCY2012 Result Update

Exhibit 1: 1QCY2012 performance (Standalone)


Y/E Dec. (` cr) Net Revenues Other Operating Income Total Operating Income Net Raw-Material Cost (% of Sales) Power & Fuel (% of Sales) Staff Costs (% of Sales) Freight & Forwarding (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`) Source: Company, Angel Research 1QCY12 2,860 29 2,889 456 16.0 676 23.6 130 4.5 427 14.9 555 19.4 2,244 645 22.5 32 466 66 213 58 27.2 155 5.4 8.3 4QCY11 2,503 52 2,555 422 16.9 584 23.3 155 6.2 376 15.0 576 23.0 2,113 442 17.7 19 127 46 341 (129) (37.8) 470 18.8 25.0 (67.0) (1,336)bp (67.0) 6.2 46.0 489bp 65 266.7 44.1 (37.5) (144.9) (3.7) 13.4 (16.4) 15.9 % chg qoq 14.3 (45.0) 13.1 8.1 1QCY11 2,398 25 2,424 412 17.2 478 20.0 112 4.7 344 14.4 497 20.7 1,844 580 24.2 25 113 42 483 133 27.5 351 14.6 18.7 (55.7) (919)bp (55.7) 21.7 11.3 (162)bp 25.0 314.1 58.8 (55.9) (56.3) 11.6 24.0 15.7 41.4 % chg yoy 19.3 13.8 19.2 10.8 CY2011 9,439 222 9,660 1,503 15.9 2,183 23.1 526 5.6 1,402 14.9 2,126 22.5 7,740 1,921 20.3 97 475 192 1,540 215 14.0 1,325 14.0 70.5 CY2010 7,717 258 7,976 1,168 15.1 1,599 20.7 462 6.0 1,070 13.9 1,865 24.2 6,163 1,812 23.5 57 393 98 1,461 341 23.4 1,120 14.5 59.6 18.3 (47)bp 18.3 25.6 6.0 (314)bp 70.7 21.0 94.9 5.4 (37.0) 14.0 31.0 13.8 36.6 % chg yoy 22.3 (14.2) 21.1 28.8

Exhibit 2: Financial performance


3,500 3,000 2,500 2,398 1,958 1,637 2,403 2,503 2,150 2,860 26 24 22 20 18 16 351 337 470 168 14 155 12 10 Net Sales
Source: Company, Angel Research

(` cr)

1,500 1,000 500 0

100

256

3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12 Reported PAT OPM (RHS)

April 19, 2012

(%)

2,000

ACC | 1QCY2012 Result Update

Exhibit 3: 1QCY2012 Actual vs. Angel estimates


(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual 2,860 645 22.5 155

Estimates 2,826 618 21.9 376

Variation (%) 1.2 4.4 69bp (58.7)

Performance highlights
Robust top-line growth
ACC reported strong top-line performance during 1QCY2012 on account of improved realization and higher sales volume. During the quarter, ACCs realization rose strongly by 9.3% yoy and 1.2% qoq to `4,256/tonne. The companys cement sales volume rose by 9.1% yoy, aided by capacity additions carried out by the company at Wadi and Chanda and healthy pick-up in demand across the country.

Higher power and fuel and freight costs impacted OPM


Despite improved yoy realization, ACC faced margin pressure during the quarter on account of surge in power and fuel cost and freight cost. Power and fuel cost per tonne rose substantially on account of higher coal prices in the domestic market. Freight cost per tonne also increased on account of higher diesel prices and increased railway freight charges. Union Budget 2011-12 had increased the excise and service tax rates by 200bp, which are also expected to increase costs going ahead. Thus, the company reported OPM of 22.5% during 1QCY2012, down 162bp on a yoy basis.

Per tonne analysis


During 1QCY2012, ACCs realization/tonne improved by 9.3% yoy to `4,256. Power and fuel cost/tonne surged by 29.6% yoy to `1,006. On a qoq basis, power and fuel cost/tonne rose by 2.6% yoy. Freight cost/tonne increased by 13.6% yoy to `635. Operating profit/tonne stood at `917, up 1.9% yoy.

Exhibit 4: Operational performance


Parameter (`) Realization/tonne Raw-material cost /tonne Power and fuel cost /tonne Freight cost/tonne Other expenses/ tonne Operating profit/tonne
Source: Company, Angel Research

1QCY12 4QCY11 1QCY11 yoy chg (%) qoq chg (%) 4,256 642 1,006 635 825 917 4,206 649 981 633 968 654 3,893 679 777 559 807 900 9.3 (5.5) 29.6 13.6 2.3 1.9 1.2 (1.1) 2.6 0.4 (14.7) 40.1

April 19, 2012

ACC | 1QCY2012 Result Update

Investment rationale
Favorable capacity location to augur well for ACC
Around 51% of ACC's total capacity is located in states where either cement supply is less than cement demand or, if it is more, excess can economically be supplied to nearby supply-deficit states. Hence, all such capacities can rationally achieve higher capacity utilization. Even its entire south India plant capacity is in Karnataka and Tamil Nadu, where demand-supply dynamics are far better than that in Andhra Pradesh.

Growth to be driven by capacity addition


Post the expansion of Wadi plant and the commissioning of the 3mtpa Chanda plant, ACC's total capacity currently stands at 30mtpa. These capacity additions are expected to drive its growth going ahead, as was reflected by the 11.5% yoy increase in its dispatches during CY2011.

Higher fuel availability for CPPs Lower power and fuel costs
Going ahead, we expect power and fuel cost to be lower for the company, as it currently has 85% self sufficiency in its power requirement with a 361MW captive power plant (CPP) and access to the highest coal linkage in the industry along with few captive coal blocks.

Outlook and valuation


We expect ACC to register 14.8% yoy growth in its top line over CY2011-13E, aided by higher volume and realization. The bottom line is expected to post a CAGR of 7.3%. At current levels, the stock is trading at EV/tonne of US$128 on CY2012E capacity (US$121 on CY2013E capacity), which in our view is fair. Hence, we continue to remain Neutral on the stock.

Exhibit 5: Key assumptions


Earlier estimates CY12E Installed capacity (mtpa) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates CY12E 30 969 720 853 CY13E 30 969 720 856 30

CY13E 939 679 744

30 939 679 744

April 19, 2012

ACC | 1QCY2012 Result Update

Exhibit 6: Change in estimates


Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

CY12E Earlier
10,796 8,872 2,145 488 92 1,805 505 1,299

CY13E Var. (%)


8.5 (23.6) (23.6) (23.6)

Revised
10,796 8,872 2,145 529 92 1,379 386 993

Earlier
12,441 10,031 2,632 521 86 2,323 697 1,626

Revised
12,441 10,020 2,643 543 86 2,180 654 1,526

Var. (%)
(0.1) 0.4 4.3 (6.2) (6.2) (6.2)

Exhibit 7: One-year forward EV/tonne


250,000 200,000

EV (` mn)

150,000 100,000 50,000 0

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

EV/tonne

$100

$120

$140

$160

Source: BSE, Company, Angel Research

Exhibit 8: Recommendation summary


Company ACC* Ambuja Cements* India Cements JK Lakshmi Cement Madras Cements Shree Cement UltraTech Reco. CMP (`) 1,247 165 99 66 152 2,888 1,465 Tgt. price (`) 79 Upside (%) 20 FY2013E P/BV (x) 2.8 2.8 0.8 0.5 1.3 3.2 2.4 FY2013E P/E (x) 15.4 15.7 7.8 4.0 8.4 15.9 15.0 FY2011-13E EPS CAGR (%) 7.3 13.4 14.1 21.5 4.7 65.4 12.0 FY2013E RoCE (%) 23.3 22.1 8.6 11.1 14.4 19.7 17.7 FY2013E RoE (%) 19.0 19.1 10.5 14.3 16.9 22.2 17.4

Neutral Neutral Neutral Buy Neutral Neutral Neutral

Source: Company, Angel Research; Note : * December year ending

April 19, 2012

Apr-12

ACC | 1QCY2012 Result Update

Profit & loss statement (Standalone)


Y/E Dec. (` cr) Total Operating Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) Adjusted PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY08 3.9 886 416 CY09 12.5 CY10 (2.6) CY11 21.1 CY12E 11,018 14.1 8,872 1,744 2,430 586 4,113 2,145 11.7 19.9 529 1,616 11.8 15.0 92 190 13.8 1,714 11.3 335 1,379 386 28.0 1,328 0.2 12.3 70.7 70.7 0.2 CY13E 12,663 14.9 10,020 2,032 2,739 645 4,604 2,643 23.2 21.2 543 2,100 29.9 16.9 86 166 7.6 2,180 27.1 2,180 654 30.0 1,526 14.9 12.3 81.2 81.2 14.9 7,283 8,191 7,976 9,660 5,550 5,547 6,163 7,740 956 1,168 1,503 368 462 526 1,599 1,540 1,599 2,183 2,648 2,684 2,935 3,527 1,733 2,644 1,812 1,921 (9.6) 23.8 294 (10.8) 19.8 40 338 18.9 1.1 (49) 524 29.3 (1.0) 16.7 64.6 64.6 (1.1) 52.6 (31.5) 32.9 342 23.5 393 6.0 20.3 475 1.8 15.3 97 192 12.5 5.4 215 14.0 18.3 14.0 70.5 70.5 18.3

1,439 2,302 1,420 1,445 60.0 (38.3) 28.7 84 77 3.3 18.4 57 98 6.7

1,737 2,294 1,461 1,540 32.1 (36.3) 688 30.0 341 23.4

1,785 2,294 1,461 1,540

1,213 1,607 1,120 1,325 32.5 (30.3) 20.0 85.5 85.5 14.5 59.6 59.6

32.4 (30.3)

April 19, 2012

ACC | 1QCY2012 Result Update

Balance sheet (Standalone)


Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 5,836 2,366 3,470 1,603 679 2,760 984 651 1,124 2,766 (6) 5,746 6,826 2,668 4,158 2,156 1,476 2,256 708 554 994 3,114 (858) 6,932 8,077 2,995 5,082 1,563 1,703 2,753 980 624 1,149 3,746 (993) 7,355 9,645 3,438 6,208 435 1,625 3,618 1,653 590 1,375 3,664 (46) 8,221 9,901 3,967 5,933 1,145 1,755 3,683 1,170 618 1,895 3,907 (224) 8,609 10,156 4,510 5,646 2,176 1,855 3,861 972 675 2,213 4,130 (269) 9,408 188 4,740 4,928 482 336 5,746 188 5,828 6,016 567 349 6,932 188 6,282 6,469 524 362 7,355 188 7,004 7,192 511 518 8,221 188 7,417 7,605 486 518 8,609 188 8,241 8,429 461 518 9,408 CY08 CY09 CY10 CY11 CY12E CY13E

April 19, 2012

ACC | 1QCY2012 Result Update

Cash flow statement (Standalone)


Y/E Dec. (` cr) Profit before tax Depreciation Interest expense Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY08 1,785 294 40 309 338 564 1,527 (1,325) 166 338 (822) 2 13 439 40 (464) 241 743 984 CY09 2,294 342 84 575 77 727 2,492 (1,544) (797) 77 (2,264) 85 505 84 (505) (276) 984 708 CY10 393 57 407 98 395 (657) (227) 98 (786) (43) 667 57 (767) 272 708 CY11 CY12E CY13E 1,379 529 92 (305) 190 386 1,119 (130) 190 (25) 580 92 (697) (483) 1,653 1,170 2,180 543 86 (153) 166 654 1,836 (100) 166 (25) 702 86 (813) (198) 1,170 972 475 97 (142) 192 215 (441) 78 192 (171) (13) 609 97 (719) 672 980 1,461 1,540

1,825 1,563

(965) (1,287)

(904) (1,221)

980 1,653

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ACC | 1QCY2012 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) (0.2) (0.7) 36.0 (0.2) (0.5) 27.3 (0.3) (1.0) 25.0 (0.3) (1.2) 14.9 (0.3) (0.9) 17.5 (0.2) (0.7) 24.3 1.3 38 15 159 (40) 1.3 35 11 193 (57) 1.1 39 9 203 (81) 1.1 38 8 175 (69) 1.1 44 9 156 (51) 1.3 49.5 9.2 146.4 (38.0) 26.9 55.4 26.7 36.3 90.8 29.4 19.9 49.8 17.9 18.6 37.9 19.4 19.2 35.7 18.0 23.3 46.9 19.0 19.8 70.7 2.0 27.3 28.1 70.0 1.8 35.1 17.8 76.6 1.6 21.4 15.0 86.0 1.8 23.8 14.7 72.0 1.9 20.2 16.6 70.0 1.9 22.4 64.6 64.6 82.8 20.0 262.3 85.5 85.5 103.7 23.0 320.1 59.6 59.6 80.5 30.5 344.2 70.5 70.5 95.8 28.0 382.7 70.7 70.7 81.0 26.6 404.6 81.2 81.2 110.1 32.2 448.5 19.3 15.1 4.8 1.6 2.9 12.1 3.7 14.6 12.0 3.9 1.8 2.5 7.6 2.9 20.9 15.5 3.6 2.4 2.6 11.1 2.7 17.7 13.0 3.3 2.2 2.2 10.8 2.5 17.6 15.4 3.1 2.1 1.9 9.5 2.4 15.4 11.3 2.8 2.6 1.6 7.3 2.1 CY08 CY09 CY10 CY11 CY12E CY13E

April 19, 2012

ACC | 1QCY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

ACC No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 19, 2012

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