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ACC: No surprises - Views on News from Equitymaster
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ACC: No surprises
Feb 4, 2010

Performance summary
  • On a standalone basis, revenues grow by a robust 10% YoY largely backed by higher per bag cement prices.
  • Stable cost of operation and improved realisations led to 43% YoY growth in operating profits.
  • Despite more than two-fold growth in interest expense and lower other income, growth in bottomline stands at 32.6% YoY. This is mainly on account of good show at the operating level.
  • Excluding extraordinary income reported in CY08, net profit growth stands at nearly 38% YoY.
  • The board of directors has declared final dividend of Rs 13 per share. Including the interim dividend, the total dividend for the year works out to Rs 23 per share. His translates into a dividend yield of 2.7%.


Financial performance snapshot
(Rs m) CY08 CY09 Change
Net sales 72,829 80,272 10.2%
Expenditure 55,497 55,475 0.0%
Operating profit (EBITDA) 17,332 24,797 43.1%
EBITDA margin 23.8% 30.9%  
Other income 2,887 2,411 -16.5%
Interest 400 843 110.9%
Depreciation 2,942 3,421 16.3%
Profit before tax/(loss) 16,877 22,944 35.9%
Extraordinary items 489 - -100.0%
Profit from extraordinary activities 17,366 22,944 32.1%
Tax 5,238 6,868 31.1%
Net profit 12,128 16,076 32.6%
Net profit margin 16.7% 20.0%  
No of shares (m) 188 188  
Diluted EPS (Rs)*   85.6  
P/E (times)   10.0  
*trailing twelve month earnings

What has driven performance in CY09?
  • ACC has reported 10% YoY growth in revenues during CY09. The growth has largely been backed by improved realisations. During the period under consideration, sales volumes have grown by merely 2.4% YoY. Since topline is a function of volumes and cement prices (realisations), it is clear that higher cement prices has driven the growth in revenues.

  • The company has expanded its capacity to 26 MTPA. This includes capacity expansion at Bargarh plant (1.1 MT incremental capacity) and setting up of two grinding in Karnataka of 1.1 and 1.6 MTPA capacities. The company has also set up 15 MW of captive power plant Bargarh. The second phase of expansion at Karnataka plant includes setting up 50 MW of captive power generation capacity.

  • The company would see addition of 3 MT of capacity by the end of 3QCY10 upon setting up of new clinker line in Maharashtra. It also plans to set up 25 MW of captive power plant. These capital expenditure plans would entail an investment of Rs 14.5 bn raising the company’s total capacity to 30 MTPA.

  • The company’s move to set up captive power plants has enabled it to satisfy 71% of its power requirements in CY09 (66% in CY08). The same seemed to have helped the company lower its power costs by 34% YoY during CY09. Apart from control on production costs, the company has also focused on containing distribution and other costs. While the efforts are prominently visible on the power cost front. Better prices, company’s efforts to contain rise in cost of operation led to 43% YoY growth in operating profits. Due to change in discounting rate in valuation of present value of employee benefit liabilities, the company has recongnised credit of Rs 266 m in CY09 as against a charge of Rs 341 m in CY08. The same has also cushioned EBITDA margins that expanded by 7.1% to 30.9% in CY09.

  • Despite more than two-fold growth in interest expense and lower other income, growth in bottomline stood at 32% YoY. This is mainly on account of good show at the operating level. If one excludes extraordinary income reported in CY08, the growth in bottomline stood a tad higher at nearly 38% YoY.

What to expect?
The stimulus packages announced are likely to boost rural and construction activity. On account of government’s initiatives the demand for the commodity is expected to grow at the rate of 10%. While this is a positive development, the industry has added significant capacity and more projects are implementation. While volumes are expected to pick up, prices are likely come under pressure. Thus, lower realizations couple with hardening of prices of key inputs like coal and gypsum is likely to exert pressure on margins.

The company has ended the year in line with our expectations. We maintain our negative view on the stock. This is because even after taking into account a favourbale scenario, on the basis of asset valuation method, the stock is fairly valued at the current levels. At the current price of Rs 856, the stock is trading at an EV/tonne of around Rs 4,800 based on our CY11 estimates.

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