ACC - Cement Sector Update - Karvy

Decline in market share to continue until CY14E: ACC lacks near term volume growth visibility as it does not any expansion until CY15E. Factoring in the continued weakness in demand off-take which will result in YoY volume decline for its 4QCY13E & CY13E volume, we have lowered our EBITDA estimates by 4-5% for CY13-14E period. Subsequently, we factor in a 3% YoY volume growth in CY14E.

Volume growth would benefit post Jamul expansion: ACC's 5 mn MT capacity expansion in Jamul (Chhattisgarh) should be commissioned by 1HCY15E and it should aid volume growth from CY15E onwards.

Return ratio has halved over the last four years: Currently, we factor in -4% EBITDA & PAT CAGRs during CY12-14E period. Weak profitability, lower asset sweating and stretch in working capital would keep its RoE's downward slide to 11-13% during CY13-14E – almost half of its 26% RoE in CY09.

Holcim deal neutral for ACC: In the absence of the expected demand recovery in CY14-15E, our earnings estimates can face further downward revisions. The proposed restructuring of Holcim's shareholding in ACC & Ambuja is earnings & valuation neutral for ACC's shareholders.

Valuation & Recommendation: We continue to maintain our "SELL" recommendation on the stock with a TP of Rs1,080 valuing it at 9x its CY14E EBITDA.

Source : Equity Bulls

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