ACC - 4QCY16 Result Update - Subdued Performance Continues - Reliance Securities

ACC continued to report a subdued and poor operating performance as EBITDA saw a dip of ~11% YoY to Rs1.92bn as against our estimate of Rs2.02bn, mainly marred by dismal sales volume (-9.2% YoY) and surge in operating costs. Operating cost/tonne surged by ~3.3% YoY and ~2.9% QoQ mainly on account of spike in freight cost/tonne (+7.5% YoY and +3.7% QoQ), which is attributed to increase in diesel prices and increase in road lead distance. Further, power & fuel cost/tonne also rose by 9.5% QoQ (though down by 6.6% YoY) due to increase in fuel costs. EBITDA/tonne stood merely at Rs343 vis-à-vis Rs405 and Rs430 reported in 4QCY15 and 3QCY16, respectively. Adjusted with provisioning of Rs428mn pertaining to unrealised sum invested in cancelled coal block, PAT saw a decline of ~11% YoY Rs911mn. We cut EBITDA estimates by 6% / 5% for CY17E / CY18E, respectively mainly to factor dismal sales volume and hardening of operating costs. As we do not see any meaningful reason to rerate our target multiple, we downgrade our recommendation from BUY to HOLD.

Cement Sales Volume Remains Subdued

Sales volume continued to remain dismal as it de-grew by ~9.2% YoY to 5.45mnT owing to consistent loss of market shares to new entrants and adverse impact in rural segment demand post demonetization. Cement revenue saw a decline of ~8% YoY to Rs25.02n. However, RMC volume saw a strong growth of ~13.6% YoY to 0.67mn cubic metres.

Dismal Operating Performance

Subdued sales volume along with visible pressure on operating cost owing to surge in freight and fuel costs led to EBITDA contraction of 11% YoY to Rs1.92bn. However, average realization is up by ~1.6% YoY and 0.7% QoQ due to 27% YoY growth in sales of premium segment products. EBITDA/tonne stood merely at Rs343 vis-à-vis Rs405 and Rs430 reported in 4QCY15 and 3QCY16, respectively.

Valuation and Outlook

At CMP, the stock trades at US$113/US$114 on EV/tonne for CY17E/CY18E, respectively. On EV/EBITDA, it is trading at 14.2x/10.1x for CY17E/CY18E, respectively. We cut EBITDA estimates by 6% / 5% for CY17E / CY18E, respectively mainly to factor dismal sales volume and hardening of operating costs. As we do not see any meaningful reason to rerate our target multiple, we downgrade our recommendation from BUY to HOLD with a revised Target Price of Rs1,540 (11x CY18 EBITDA).

Shares of ACC LTD. was last trading in BSE at Rs.1421 as compared to the previous close of Rs. 1435.6. The total number of shares traded during the day was 47897 in over 3395 trades.

The stock hit an intraday high of Rs. 1437 and intraday low of 1408. The net turnover during the day was Rs. 68061186.

Source : Equity Bulls

Keywords