ACC - Profits Decline on Weak Demand; Maintain HOLD - Karvy

In Q1CY13, ACC's consolidated Sales, EBITDA and PAT declined 3%, 24% and 21% YoY, respectively to Rs29.6bn, Rs4.9bn and Rs. 3 bn. 2% lower Net Sales Realization (NSR) resulted in 9% lower EBITDA against our estimate. However, on account of higher other income PAT came in 3% lower than our estimates. EBITDA per MT declined 21% YoY (up 16% QoQ) to Rs766.

Muted Volume & Realization Growth to Drag Profitability in CY13E: The demand and prices of cement continue to remain subdued during the peak construction period, which in turn would impact ACC's profitability in CY13E. We expect ACC's volume growth to remain low at 2% & 5% in CY13-14E period, as the Company doesn't have any major expansion in the nearterm. However, its operating costs should benefit from stable fuel costs in CY13E thereby moderating the impact of weak realization. Meanwhile, its PAT would also benefit from higher treasury earnings on account of its huge Cash & Equivalent on books (~25% of total assets).

EBITDA to Remain under Pressure; Improvement Expected in CY14E: We have lowered our EBITDA estimates by 8% & 6% for CY13E & CY14E respectively to factor in weak demand and stable cost pressure. With the likely improvement in demand from 4QCY13 onwards driven by electionrelated spending, we estimate ACC's EBITDA to rise 12% YoY in CY14E.

Outlook & Valuation - Maintain HOLD on Weak Near-term Outlook We value ACC at 8x its CY14E EBITDA thereby arriving at one-year target price of Rs1,315 per share (replacement cost of US$126 per MT). Ahead of the results, we had downgraded the stock to "HOLD" in the beginning of Apr'13 to factor in its weak profitability expected during the peak quarter. We continue to maintain our "HOLD" recommendation on the stock, as the Company's profitability for the next two quarters should remain subdued driven by weak demand.

Source : Equity Bulls

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