ACC - Q4CY11 Result update/ Estimate change - Centrum

Results largely in line; maintain Sell

ACC's Q4CY11 result was largely in-line with our estimates with EBITDA at Rs3.7bn vs. est. Rs3.67bn and operating margin at 15% vs. est. 15.6%. Adjusted PAT during the quarter was 6.1% above our estimates at Rs2.4bn primarily due to lower-than-expected interest expense of Rs192mn (est.: Rs250mn) and higher other income of Rs1.1bn (est.: Rs1bn). Cement prices continue to remain firm across the country after the decline in Q3 (during monsoons) and hence, realization increased Rs402/tonne QoQ (19.8% YoY and 10.6% QoQ) to Rs4,181/tonne. Though we have factored in higher cement prices for the company due to prolonged sustainability of cement price at higher levels across the country over the past one year contrary to our expectation of a decline in cement prices due to lower utilization rate, margins of the company is expected to remain suppressed due to mounting cost burdens. Rising operating cost/tonne (12.7% YoY increase in CY11) negated the benefits of significant increase in volume (11.5% YoY in CY11) and realization (9.7% YoY) and operating margin declined 2.1pp YoY to 18% in CY11. Going forward, EBITDA margin is expected to be at 18.4% till CY13E primarily due to a rise in input costs, much lower than peak-cycle average margin of 27.5% for the period CY06-CY09. Average RoE of the company is expected to be 16.8% in CY12E and CY13E compared to peak cycle RoE of 32.3% between CY06-CY09. We have rolled forward our valuation to CY13 and maintain Sell on the stock with revised price target of Rs1,030 (earlier: Rs896), downside of 23.5% from CMP.

- Higher realizations and volume help to post better results: Higher domestic realization (up 19.8% YoY) and sales volume (up 6.1% YoY) resulted in 27.1% YoY growth in revenues to Rs24.9bn, 5.4% above our estimates of Rs23.6bn. Higher realizations led to 70.9% YoY increase in EBITDA to Rs3.7bn (est.: Rs3.67mn). EBITDA margin improved 3.9pp YoY to 15% (est. 15.6%). Adjusted profit of the company increased 39.4% YoY to Rs2.4bn, 6.1% above our estimates of Rs2.3bn. EBITDA/tonne increased 61.2% YoY to Rs629/tonne (est. Rs633/tonne).

- Increase in operating costs offset by steep increase in realization: Operating costs went up 14.6% YoY led by 21.9% YoY increase in energy costs due to increase in domestic coal prices last year and 18.5% YoY in freight costs due to a hike in railway freight rates and diesel price. Despite higher operating costs, EBITDA margin improved 3.9pp YoY to 15% primarily driven by steep 19.8% YoY increase in cement realization.

- EPS estimates revised downwards for CY13E: We have revised our EPS estimates downwards by 14.7% to Rs72.8 for CY13E considering the mounting cost burdens (operating cost during the quarter increased 14.6% YoY and 4.7% QoQ to Rs3,552/tonne).

- Rolling valuations to CY13, maintain Sell on stretched valuations: At the CMP, the stock trades at 18.5x CY13E EPS, 10.6x EV/EBITDA, 3x P/BV and EV/tonne of US$161.9. We roll forward our valuation to CY13E and maintain Sell on the stock with revised price target of Rs1,030 (earlier: Rs896), downside of 23.5% from CMP.

Source : Equity Bulls

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