ACC (SELL): In-line volumes but notably lower EBITDA/tonne - Ambit

ACC's EBITDA and PAT in 1QCY13 were significantly lower than our expectations. Volumes (down 4% YoY) were in line with our estimates; however, realisation (excluding other operating income) was 7% lower than our expectation. Whilst power and fuel and freight costs were significantly lower than our expectations (~9% and ~5%, respectively), cement EBITDA/tonne was 20% lower than expectation (down 20% YoY but up 14% QoQ), as realisation declined QoQ and raw material cost and other expenses rose sharply.

We believe that profitability will further decline in the near term as: (a) demand and pricing remains weak; (b) the company is continuously losing market share to regional players/new entrants; and (c) costs (especially freight) are likely to move up. We will downgrade our CY13 assumptions and we expect a unitary EBITDA decline of ~20% (as against the earlier decline of 8%) and 27% decline in PAT (as against 12% earlier).

We maintain our SELL stance given expensive valuation (9.9x CY13 EBITDA) and declining profitability. Our fair valuation of Rs1,100 implies a 8.8x CY13 EV/EBITDA or a US$113 EV/tonne.

Source : Equity Bulls

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