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ACC: A dismal end to the year

Feb 6, 2014

ACC has announced its financial results for the fourth quarter and full calendar year ended 2013. During the quarter ended December 2013, the company's standalone sales declined by 13.1% YoY while net profits increased by 16.3% YoY. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales declined by 13.1% YoY during the quarter owing to poor volume sales and fall in cement realisations.
  • Operating profits decline by 17.2% YoY as EBITDA margin contracts from 10.2% in 4QCY12 to 9.8% in 4QCY13.
  • Interest expenses fall sharply by 56.1% YoY.
  • Net profits increase by 16.3% YoY on account of tax credit of Rs 363 m arising from reversal of tax provisions relating to prior periods.
  • During the full calendar year, the company's net sales declined by 2% YoY. While net profits increased by 3.3% YoY, the profits of the two calendar years are not comparable as there was an exceptional loss in CY12 arising due to change in depreciation method.
  • The company's board of directors has announced a final dividend of Rs 19 per share for CY13.

Standalone financial performance snapshot
(Rs m) 4QCY12 4QCY13 Change CY12 CY13 Change
Net sales 30,989 26,934 -13.1% 111,305 109,084 -2.0%
Expenditure 27,817 24,308 -12.6% 91,624 95,402 4.1%
Operating profit (EBITDA) 3,172 2,626 -17.2% 19,681 13,683 -30.5%
EBITDA margin 10.2% 9.8%   17.7% 12.5%  
Other income 1,468 1438 -2.1% 4,923 4,843 -1.6%
Depreciation 1,575 1,526 -3.1% 5,589 5,740 2.7%
Interest 273 120 -56.1% 1147 517 -54.9%
Profit before tax & exceptional items 2,792 2,419 -13.4% 17,869 12,270 -31.3%
Exceptional gain/ (loss) - -   (3,354) -  
Profit before tax 2,792 2,419 -13.4% 14,515 12,270 -15.5%
Tax 400 (363)   3,903 1,312 -66.4%
Effective tax rate 14.3% NA   26.9% 10.7%  
Profit after tax 2,392 2,781 16.3% 10,612 10,958 3.3%
Net profit margin 7.7% 10.3%   9.5% 10.0%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         58.4  
P/E (times)         17.5  
*trailing twelve month earnings

What has driven performance in 4QCY13 and CY13?
  • On a standalone basis, ACC's net sales declined by 13.1% YoY during the quarter ended September 2013 driven by lower realisations and sluggish cement demand.
  • On the cost front, raw material costs witnessed a sharp increase of 7.5% YoY (as a percentage of net sales). Power and fuel expenses, freight & forwarding expenses and other expenses increased by 4.4% YoY, 3.4% YoY and 1.5% YoY respectively (as a percentage of net sales). However, total raw material expenses declined by 7.8% YoY (as a percentage of net sales). The operating margins contracted from 10.2% in 4QCY12 to 9.8% in 4QCY13.

    Operating cost break-up
    (Rs m) 4QCY12 4QCY13 Change
    Raw materials consumed 6,243 4,092  
    Purchases of stock-in-trade 559 607  
    Change in inventory 1,003 (21)  
    Total raw materials cost 7,805 4,679 -40.1%
    % of net sales 25.2% 17.4%  
    Employee expenses 2,084 1,557 -25.3%
    % of net sales 6.7% 5.8%  
    Power & fuel expenses 5,355 5,837 9.0%
    % of net sales 17.3% 21.7%  
    Freight & forwarding expenses 6,019 6,135 1.9%
    % of net sales 19.4% 22.8%  
    Other expenses 6,555 6,101 -6.9%
    % of net sales 21.2% 22.7%  
    Total operating expenditure 27,817 24,308 -12.6%
    % of net sales 89.8% 90.2%  

  • Other income decreased by 2.1% YoY during 4QCY13. Depreciation charges and interest expenses decreased by 3.1% YoY and 56.1% YoY respectively.

  • As against tax expenses of Rs 400 m during 4QCY12, the company reported net tax credit of Rs 363 m in 4QCY13 on account of reversal of tax provision relating to earlier years.

  • Owing to the tax credit, net profits increased by 16.3% YoY. Net profit margins expanded from 7.7% in 4QCY12 to 10.3% in 4QCY13.

  • For the full year, net sales declined by 2% YoY. Cement sales volumes declined by 0.7% YoY to 23.93 million tonnes in CY13 as against 24.11 million tonnes in CY12.

  • Net profits increased marginally by 3.3% YoY during the year on as the company had reported an exceptional loss of Rs 3,354 m during CY12.

  • The company's board of directors has recommended a final dividend of Rs 19 per share the calendar year 2013. Along with the interim dividend of Rs 11 per share, the total dividend for the year stands at Rs 30 per share. At the current stock price level, the dividend yield stands at 2.9%.

  • The company commissioned its first Waste Heat Recovery Boiler plant with an output of about 7 MW at the Gagal cement plant in Himachal Pradesh.

  • The expansion project at Jamul is underway and has reached the halfway stage. It is expected to be completed in a phased manner by mid 2015. In addition, work at the Sindri site in Jharkhand has also commenced.

What to expect?
During the year, cement demand remained under pressure owing to the slowdown in the economy. In addition, cost pressures persisted while cement realisations were under pressure. This resulted in substantial margin erosion.

The sluggishness in the housing and infrastructure sector is likely to persist over the medium term. Hence, an immediate revival in cement demand and profitability seems unlikely. However, the long term prospects of the sector remain stable owing to the huge demand for housing and infrastructure in the country.

At the current prices of Rs 1,019 the stock is trading at 17.5 times its trailing twelve month standalone earnings. We had recommended 'Buy' on ACC in our StockSelect dated May 31, 2013. Given the strong long term fundamentals and healthy balance sheet, we continue to maintain our 'Buy' view on the stock.

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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