ACC - Fundamentals strong; Buy - Anand Rathi

We expect ACC to deliver flat yoy revenue and EBITDA due to similar trends in volumes and realisations. PBT is expected to decline 3% yoy while PAT, 51% yoy, due to a tax credit in 4QCY11. Key monitorables are the company's outlook on demand and the timeframe to commission fresh capacities. We maintain a Buy, with a price target of Rs.1,605. ACC is our top pick among large caps.

- Modest dispatch increase. ACC's cement dispatches in 4QCY12 are likely to rise 1% yoy (and 4% qoq), to 5.64m tons, due to a slowdown in dispatch growth rates, all-India. We estimate industry dispatches to have risen less than 1% during 3QFY13. Average realisation is expected to drop 1% yoy (and 2% qoq). to Rs.4,430/ton. Accordingly, revenue is estimated to be flat yoy (up 2% qoq).

- Flat EBITDA yoy. The company has been consistently putting in efforts to rationalise costs through pruning coal, power usage and more use of alternative fuels. We estimate overall cost pressure to be contained during 4QCY12, leading to EBITDA per ton of Rs.697 (Rs.806 in 3QCY12, Rs.698 in 4QCY11). On flat yoy realisation and volume growth, we expect a similar yoy trend in EBITDA (declining 10% qoq).

- PAT to decline 51% yoy, PBT just 3%. PAT is expected to decline 51% yoy (and 7% qoq) due to a tax credit in 4QCY11. The PBT drop, however, would be limited to just 3% yoy (7% qoq).

- Valuation. ACC's all-India operations, positive FCF, high dividend payout and higher RoE are fundamental positives. Net cash of Rs.84 a share in Dec'11 is expected to climb to Rs.150 by Dec'13. At our price target of Rs.1,605, the stock would trade at 9x CY13e EV/EBITDA. The target price implies EV/ton of US$165 and a PE of 16.8x. Risks. Hike in coal price or in technology/knowhow fees to Holcim.

Source : Equity Bulls

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