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ACC: Hurt by poor realisations, high costs

Feb 4, 2011

ACC has announced its CY10 results. The company has reported a 4% YoY and 30% YoY decline in sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • Revenue decline by 4% YoY mainly on the back of flat sales volumes and lower realisations.
  • During the year, operating costs rise 11%, reducing the EBITDA margin by almost 11% YoY.
  • While operating profits drop by 37%, the bottomline declines by 30% YoY.
  • Net profit margins decline by 5.5% YoY to 14.5%.

Standalone financial performance snapshot
(Rs m) CY09 CY10 Change
Net sales 80,272 77,173 -3.9%
Expenditure 55,468 61,634 11.1%
Operating profit (EBITDA) 24,804 15,540 -37.3%
EBITDA margin 30.9% 20.1%  
Other income 2404 3569 48.5%
Interest 843 568 -32.6%
Depreciation 3421 3,927 14.8%
Profit before tax/(loss) 22,944 14,615 -36.3%
Tax 6877 3414 -50.3%
Profit after tax/(loss) 16,067 11,200 -30.3%
Net margin 20.0% 14.5%  
No of shares (m)   187.7  
Diluted EPS (Rs)   59.7  
P/E (times)   16.4  

What has driven performance in CY10?
  • ACC's revenues declined by 3.9% YoY during the year ended 2010. Domestic sales volumes remained flat, reducing marginally by 1.1% from 21.52 m tonnes in CY09 to 21.29 m tonnes in CY10. The growth was also arrested due to a reduction in average realisations.

  • The company's EBITDA margin declined from 30.9% in CY09 to 20.1% in CY10. Margins were adversely affected by a fall in selling prices as well as by escalations in the costs of major inputs such as slag, fly ash, coal and power. The operating profits dropped by 37.3% YoY.

  • At the bottomline level, the decline was offset to some extent by higher other income, lower interest expenses and lower effective tax rate due to tax credit relating to earlier years. Therefore, net profits dropped by 30.3%. Net profit margins declined from 20% in CY09 to 14.5% in CY10.

  • The board has recommended payment of final dividend of Rs 20.5 per share which is inclusive of a one-time special Platinum Jubilee dividend of Rs 7.5 per share. The total dividend for the year together with the interim dividend paid earlier aggregates to Rs 30.5 per share.

  • With the commissioning of the projects at Wadi and Chanda, the total installed capacity of ACC increased to about 30 mtpa.

What to expect?
The cement industry witnessed a challenging year. While demand off-take was subdued on the one hand due to a slower pace of construction activity, the significant capacity additions by the industry over the previous two years resulted in pricing pressures. The extended monsoons also had a negative impact.

While the economy is poised to enter an era of robust growth, inflation poses an immediate challenge. Consequently, input costs are expected to remain high. Also, the cement demand-supply imbalance is set to continue for some time, and therefore, margins may remain under pressure.

At the current price of Rs 978, the stock is trading at a 16.4 times its trailing twelve month earnings. We shall update our research report shortly.

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