ACC - Operating leverage impacts margin - Elara Capital

Lower other income leads to lower than expected PAT

ACC revenues were in line with our expectations however operating profit was 6.8% lower than our estimates due to higher than expected increase in cost per tonne (5.8% QoQ V/s 4% estimated) and net profit was 13.8% lower than our estimate due to lower than expected other income. Revenues for the quarter grew by 13.7% YoY (-12%) QoQ to INR 24 bn. EBITDA for the quarter grew by 97.3% YoY (-33.2% QoQ) to INR 4.3 bn. Adjusted net profit for the quarter increased by 102.4% YoY (-40.5% QoQ) to 2.5 bn on the back of higher EBITDA.

Realisations improve 19.8% YoY

Realisations for the quarter improved by ~INR 748/tonne YoY (up 19.8% YoY and -1.4% QoQ) to INR4,527/tonne as cement prices remained stable during monsoon.

Volumes down by 5.1% YoY & 10.7% QoQ due to weak demand

The sales volume declined by 5.1% YoY and -10.7% QoQ to 5.4 mn tonnes on account of weak demand from the construction sector and prolonged monsoon.

Cost increase of 9.7% YoY and 5.8% QoQ due to operating leverage

Cost per tonne increased 9.7% YoY and 5.8% QoQ due to negative impact of operating leverage. Due to lower volumes, staff cost increased 7.1% YoY and 16.1% QoQ while other expenses per tonne increased 2.7% YoY and 11.4% QoQ.

EBITDA at INR 806/tonne; up 107.9% YoY on back of higher prices

EBITDA per tonne for the quarter stood at INR 806 as compared to INR 387 in Q3CY11 and INR 1,076 in Q2CY11.

Valuations

At the CMP of INR1,420 ACC is trading at an EV/tonne of USD~141/tonne of its CY13 capacities. The stock is trading at ~20% discount to Ambuja and ~16% discount to UltraTech. Thus, taking into account attractive relative valuations we are maintaining our Accumulate rating on the stock with price target of INR 1,500.

Source : Equity Bulls

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