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ACC: Higher fuel dents profits

Feb 5, 2009

Performance summary
  • On a standalone basis, topline grows by 4.5% YoY owing to 5% YoY growth in volumes.
  • Higher cost of operation continues to dent EBITDA margins, which decline to 23.7% in CY08 from 27.4% in CY07).
  • While operating profits report nearly 10% YoY fall, net declines at a steeper rate of approximately 16% YoY despite higher other income and lower corporate costs (interest charges and depreciation) due to lower extraordinary income.
  • If one excludes the extraordinary income during both the periods, decline in net profits is lower at 5% YoY.
  • On a consolidated basis, topline grows by 9.5% YoY, while bottomline falls by 23% YoY. For the year, ACC has recommended dividend of Rs 20 per share (dividend yield 3.8%)

Financial performance snapshot
Particulars Standalone Consolidated
(Rs m) CY07 CY08 Change CY07 CY08 Change
Net sales 69,907 73,086 4.5% 70,509 77,197 9.5%
Expenditure 50,720 55,755 9.9% 51,185 60,573 18.3%
Operating profit (EBITDA) 19,186 17,332 -9.7% 19,324 16,624 -14.0%
EBITDA margin 27.4% 23.7%   27.4% 21.5%  
Other income 1,775 2,887 62.7% 1,706 2,780 62.9%
Interest 739 400 -45.9% 744 400 -46.2%
Depreciation 3,051 2,942 -3.6% 3,130 3,205 2.4%
Profit before tax/(loss) 17,172 16,877 -1.7% 17,156 15,798 -7.9%
Extraordinary item 2,131 489   2,098 425  
Tax 4,917 5,238 6.5% 4,981 5,252 5.4%
Profit after tax 14,386 12,128 -15.7% 14,274 10,972 -23.1%
Minority Share - -   2 (0) -114.9%
Share of earnings of associates - -   2 24 1261.8%
Net profit 14,386 12,128 -15.7% 14,273 10,996 -23.0%
Net profit margin 20.6% 16.6%   20.2% 14.2%  
No of shares (m) 187.8 188        
Diluted EPS (Rs)*   64.6        
P/E (times)   8.0        
*trailing twelve month earnings

Note: Standalone numbers are not strictly comparable to the corresponding period of CY07 as the company has transferred its RMC (ready mix concrete) business to its newly formed wholly owned subsidiary called ACC Concrete.

Also consolidated numbers are not strictly comparable on a YoY basis, as the company has divested stake as well as invested in certain subsidiaries and associates.

What has driven performance in CY08?
  • On a standalone basis, ACC reported 4.5% YoY growth in topline for the period ended CY08 backed by 5% YoY growth in volumes. Taking into account total net sales and dispatches reported by the company, realisations declined marginally (0.6% YoY) during the same period under consideration.

    Cost break- up
      Standalone Consolidated
    (% of sales) CY07 CY08 CY07 CY08
    Consumption of raw materials 10.9% 10.9% 11.4% 13.4%
    Staff cost 5.1% 5.7% 5.1% 5.8%
    Power and fuel 17.8% 21.9% 17.7% 20.9%
    Outward freight 13.5% 13.7% 13.3% 12.9%
    Other expenditure 24.0% 22.9% 23.9% 23.9%
    Purchase of cement and other products 1.3% 1.2% 1.3% 1.6%

  • Operating profits declined by nearly 10% YoY owing to higher cost of operation, which was on account of higher fuel costs. These increased from 17.8% in CY07 to 21.9% in CY08 on a standalone basis. The employee cost was also on a higher side. The same could be attributed to the additional charges of approximately Rs 341 m incurred on account of change in discounting rate from 7.82% to 5.25% in valuation of employee benefit liabilities.

  • Net profits declined at a steeper rate of approximately 16% YoY, despite higher other income and lower corporate costs (interest and depreciation). The same was on account of lower extraordinary income in CY08 as compared to CY07. If one excludes this extraordinary income (profit on sale of land, investments in subsidiaries and associates companies, etc), the decline in net profits was lower at 5% YoY.

What to expect?
The upcoming capacities are expected to exert downward pressure on cement prices. However, slowing economic growth has hurt growth of cement volumes, which will further depress realizations. ACC expects the cement industry to grow at a slower pace of 6% to 8% as compared to CAGR of 9.3% of the past 5 years.

At the current price of Rs 533, the stock is trading at an EV/tonne of over Rs 3,100 based on our CY10 estimates. The company has ended the year almost in line with our expectations (excluding extraordinary income). The company’s announced plans are progressing as per schedule. However, the company has deferred new commitments on other expansion projects in the pipeline for the time being. This does not affect our estimates as we have not factored the same. We maintain our view on the stock

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