ACC - Poised for performance - Angel Broking

Muted performance in CY2012: ACC, India's third largest cement manufacturer, has been one of the underperformers in the industry, posting a volume growth of just ~1.6% in CY2012. The company witnessed higher raw material, freight, and power & fuel costs (on a per-tonne basis), although the same were offset by the steep price hikes, executed by the company during the year. Thus, the company's EBITDA/tonne stood at Rs. 913, up 14.1% yoy, despite the merger of the low-margin RMC business, during CY2012.

Expect reasonable pick-up in volumes in CY2013: ACC is a pan-India player and has operations in all the five regions of the country. We expect a reasonable improvement in the dispatches growth rate, although we do not estimate it to enter a high growth trajectory or exceed the industry growth rate. We expect the company's volume to grow at a CAGR of ~4.5% over CY2012-14 (volume CAGR for CY2010-12 is at 6.4%).

Capacity addition of 5mtpa expected by 2015: The expansion project comprises of setting up a 2.79mtpa clinker unit and a 1.1mtpa grinding unit at Jamul (Chattisgarh) with two other split grinding units in the eastern region. The new plant is expected to be operational by CY2015.

Outlook and Valuation: We expect ACC to post an 8.9% and 15.0% growth in its top-line and bottom-line over CY2012-14. The company has a strong balance sheet with a negative net debt position. ACC, which has a net operating cash inflow of Rs. 1,800cr is expected to fund its expansion through internal accruals. At the CMP, ACC is trading at an EV/tonne of US$106 on TTM basis (lower than the replacement cost of US$120/tonne) and at a substantial 39% discount to Ultratech. ACC's CY2012 RoE of 19.3% is similar to Ultratech's FY2013E RoE (inspite of the superior EBITDA/tonne of Ultratech) and is expected to improve going ahead. Thus, we believe the huge discount on ACC stock is unjustified and hence recommend a Buy on the stock with a target price of Rs. 1,361. We recommend a switch from UltraTech to ACC.

Source : Equity Bulls

Keywords