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ACC: A lackluster quarter - Views on News from Equitymaster

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ACC: A lackluster quarter
Feb 4, 2015

ACC has announced its financial results for the fourth quarter of the calendar year 2014. During the quarter ended December 2014, the company's standalone sales and net profit increased by 2.8% YoY 16.4% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increased by 2.8% YoY during the quarter driven by higher realisations.
  • Operating profit dropped by 31.9% YoY as EBITDA margin contracted from 9.8% in 4QCY13 to 6.5% in 4QCY14.
  • Net profit increased by 16.4% YoY during the quarter.
  • During the full calendar year 2014, sales and net profit grew by 5.4% YoYand 6.6% YoY respectively.

Standalone financial performance snapshot
(Rs m) 4QCY13 4QCY14 Change CY13 CY14 Change
Net sales 26,873 27,631 2.8% 108,891 114,811 5.4%
Expenditure 24,247 25,842 6.6% 95,208 102,310 7.5%
Operating profit (EBITDA) 2,626 1,788 -31.9% 13,683 12,501 -8.6%
EBITDA margin 9.8% 6.5%   12.6% 10.9%  
Other income 1,595 1,176 -26.3% 5,462 5,254 -3.8%
Depreciation 1,526 1,440 -5.6% 5,740 5,576 -2.9%
Interest 277 131 -52.6% 1136 828 -27.1%
Profit before tax & exceptional items 2,419 1,393 -42.4% 12,270 11,352 -7.5%
Exceptional gain/ (loss) - -   - -  
Profit before tax 2,419 1,393 -42.4% 12,270 11,352 -7.5%
Tax (363) (1,843) NA 1,312 (331) NA
Effective tax rate NA NA   10.7% NA  
Profit after tax 2,781 3,236 16.4% 10,958 11,683 6.6%
Net profit margin 10.3% 11.7%   10.1% 10.2%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         62.2  
P/E (times)         24.3  
*trailing twelve month earnings

What has driven performance in 4QCY14?
  • On a standalone basis, ACC's net sales increased by 2.8% YoY during the quarter ended December 2014 on account of muted cement demand.

  • On the cost front, there was an exceptional jump in raw material costs as the limestone mining operations at Chaibasa and Bargarh were temporarily suspended during the quarter following an order from the Supreme Court restraining mining under Deemed extension of second and subsequent renewals of mining leases. This resulted in a contraction in the operating profit margin from 9.8% in 4QCY13 to 6.5% in 4QCY14. However, the company has reported that as per New Mining Ordinance of January 2015, the mining operations are expected to resume soon.

    Operating cost break-up
    (Rs m) 4QCY13 4QCY14 Change
    Raw materials consumed 4,061 4,605  
    Purchases of stock-in-trade 420 511  
    Change in inventory (21) 56  
    Total raw materials cost 4,461 5,171 15.9%
    % of net sales 16.6% 18.7%  
    Employee expenses 1,556 1,924 23.7%
    % of net sales 5.8% 7.0%  
    Power fuel expenses 5,821 5,866 0.8%
    % of net sales 21.7% 21.2%  
    Freight forwarding expenses 6,109 6,592 7.9%
    % of net sales 22.7% 23.9%  
    Other expenses 6,301 6,289 -0.2%
    % of net sales 23.4% 22.8%  
    Total operating expenditure 24,247 25,842 6.6%
    % of net sales 90.2% 93.5%  

  • Other income decreased by 26.3% YoY during 4QCY14.

  • While depreciation charges declined marginally by 5.6% YoY, interest expenses fell sharply by 52.6% YoY.

  • Tax expenses during the quarter were net of credit relating to earlier years.

  • Despite the drop in operating profit margins, the net profit increased by 16.4% YoY on account of the tax credit. Net profit margin expanded from 10.3% in 4QCY13 to 11.7% in 4QCY14.
What to expect?
ACC's performance during the calendar year 2014 was lukewarm. During the year, the volume growth in cement sales has been meagre at 1.2%. However, cement realisations were higher by 4% on a year-on-year basis.

The company's clinkering project for 2.79 mtpa at Jamul and grinding unit project for 1.35 mtpa at Sindri are expected to be completed in 2015.

The company's board of directors has recommended payment of a final dividend of Rs 19 per share (including tax on dividend). Along with the interim dividend, the total dividend for the year stands at Rs 34 per share (including tax on dividend). It must be noted that the total dividend paid in 2013 was Rs 30 per share.

With the new government's focus on housing and infrastructure development as well as the easing inflationary pressures due to the sharp drop in international crude oil prices, cement demand should gradually pick up over the medium term.

At the current price, the stock is trading at 24.3 times its trailing twelve month standalone earnings. We had recommended 'Buy' on ACC in our StockSelect dated May 31, 2013. Since our recommendation, the stock is up nearly 24%. We maintain our BUY view on the stock from a 2-year perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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