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ACC 4QCY12 results update

Contributed by Nirmal Bang

ACC’s 4QCY12 standalone numbers are strictly not comparable with the corresponding period a year ago and also the previous quarter because of the amalgamation of two wholly-owned arms ACC Concrete and Encore Cement’s CY12 numbers with the company’s 4QCY12 financials. We have adjusted the numbers of the RMC (ready-made concrete) business to get the cement segment’s operating performance. Adjusted EBITDA at Rs3.1bn declined 20% YoY and was 22%/26% below our/Bloomberg consensus estimates, respectively. Adjusted EBITDA/tn of Rs524 was 20% below our estimate and adjusted EBITDA margin at 12.1% was 340bps below our estimate, primarily due to higher cost inflation. We have rolled over our target multiple to CY14E financials from CY13E. Consequently, we have revised our rating on ACC from Hold to Buy and also increased our target price from Rs1,470 to Rs1,545.

Cement net sales broadly in line with our estimate: Net cement sales rose 2.5% to Rs25.6bn (broadly in line with our estimate), primarily driven by higher realisation. Net cement realisation also increased by 2.7% YoY to Rs4,319/tn, broadly in line with our estimate. Cement sales volume remained flat YoY at 5.9mt.

Subdued operating performance: ACC reported EBITDA of Rs524/tn (down 20% YoY and 35% QoQ) which was below our estimate by Rs166/tn (following higher cost inflation). This led EBITDA margin to decline by 350bps to 12.1%, 350bps below our estimate. Total operating costs increased 6.8% to Rs3,795/tn.

Reported performance: ACC posted Rs30.9bn net sales, EBITDA of Rs3.17bn and net profit of Rs2.39bn against our estimate of Rs25.5bn net sales, EBITDA of Rs3.96bn and net profit of Rs2.27bn, which are not strictly comparable. Net sales were up 24% led by inclusion of the RMC segment’s CY12 performance for the quarter. EBITDA was below our estimate due to the low-margin RMC business. However, following lower tax provisioning, the net profit was 5% above our estimate.

Work on Jamul cement capacity expansion project begins: Preliminary work on expanding the Jamul unit, comprising a new clinker unit and a grinding unit coupled with two grinding units in the eastern region has started, with ACC placing an order for the equipment. This would increase cement capacity by 5mt by the end of 2015.

Attractive valuation, upgrade to Buy: Over the past three months, ACC stock price has declined 12% because of the fall in cement prices, concern over slowdown in demand growth and poor quarterly performance. This has made its current valuation attractive. Apart from this, we have rolled over our target multiple to CY14E earnings (from CY13E earnings earlier), leading to a revision in our target price from Rs1,470 to Rs1,545 and an upgrade in our rating on the stock from Hold to Buy.