Buy ACC - Motilal Oswal

• Mkt Cap USD3.3b
• CMP Rs816
• Buy

Below estimates, impacted by lower than estimated volumes and higher cost push; downgrade EPS; maintain Neutral

ACC's reported below estimate operating standalone performance with EBITDA margins of 27.4% (v/s est 29.2%) and PAT of Rs3.59b (v/s est Rs3.88b), impacted by lower volumes and higher than estimated cost push. Key highlights include:

- Volumes de-grew by 2.8% to 5.27MT. Realization improved by 1.8% QoQ (flat YoY) to Rs3,834/ton. Net sales declined by 2.9% to Rs20.2b (v/s est Rs20.15b).

- EBITDA de-grew by 25% YoY (~11% QoQ) to Rs5.53b, translating into 790bp YoY (~220bp QoQ) decline in margins to 27.4% (v/s est 29.2%). Profitability was impacted by ~Rs7/bag QoQ increase in cost, translating into Rs3/bag QoQ decline in EBITDA/Ton to Rs1,049/ton.

- Further, lower than estimated other income at Rs597m further restricted PAT to Rs3.59b (26% YoY decline).

- The board has recommended interim dividend of Rs10/share, as against Rs23/share in CY09.

Valuation and view: We are downgrading our EPS estimates for CY10 by 3.4% to Rs73 and 3.7% for CY11 to Rs79.9, to factor in for a) increase in freight due to diesel price increase of 6% and b) higher other expenditure. The stock is valued at 10.2x CY11E EPS, 4.9x CY11E EV/EBITDA and US$80/ton (~30MT capacity). Maintain Buy with target price of Rs1,204 (~8x CY11E EV/EBITDA).

Source : Equity Bulls

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