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Research
ACC - QUARTERLY REVIEW - Strong performance, upgrade to 'HOLD' - Karvy
Posted On : 2012-04-23 10:54:38( TIMEZONE : IST )
Strong performance, upgrade to 'HOLD'
ACC's reported standalone net profits of Rs 1.55 Bn during Q1CY12. Adjusted for exceptional depreciation expense (due to change in depreciation policy on its CPPs for prior periods), net profits rose 8% YoY to Rs 3.8 Bn. Revenues grew 19% YoY led by 8% volume growth and 10% realisation growth. However, realisation declined 1% QoQ against our expectations of 3% growth. With operating costs in-line with our estimates, EBITDA grew at 11% YoY to Rs 6.45 Bn (our estimate Rs 7.5 Bn).
Costs moderated 7% QoQ: Variable costs - raw materials (including power cost) and transportation cost declined 1% QoQ (up 17% YoY) as costs remained stable during the quarter. The fixed costs - employee and other expenses – generally soften QoQ during the March quarter as the preceding quarter includes adjustments at the year end. Going forward, we expect variable cost pressure would firm up as coal prices are expected to rise as well as on account of freight hike by Indian Railways from Mar 2012.
Demand outlook improving; utilisation to remain low: We expect industry's demand growth of 8% and 10% respectively during FY13-14E period (as against 4.5% and 6.5% during FY11-12 period) led by continued retail demand as well as pre - general election (in 2014) led infrastructure demand from the end of FY13E. However, with utilisation expected to remain under 80% until FY14E, we believe the supply discipline remains a necessity for the cement manufacturers to mitigate the rising cost pressure.
CCI overhang remains: The CCI's investigation against cement price cartelization by ~40 cement companies is almost complete and there is a probability of negative ruling against these companies which could lead to penalty of upto 50% of their FY12 profits.
Upgrade to HOLD: We value the stock at 9.5x its CY12-13E EBITDA (replacement cost of US$156 per mT) implying a target price of Rs1,308 (earlier Rs1,160) and upgrade our recommendation to 'HOLD' from 'SELL'.
