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ACC: Hit by sluggish volumes & high costs - Views on News from Equitymaster

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ACC: Hit by sluggish volumes & high costs
Feb 12, 2013

ACC has announced its results for the fourth quarter of the calendar year 2012 (4QCY12). During the quarter ended December 2012, the company's sales reported a rise of 1.9% YoY while net profits declined by 46% YoY. Here is our analysis of the results:

Performance summary
  • On a consolidated basis, net sales increase marginally by 1.9% YoY during the quarter as volumes remained almost flat due to difficult market conditions.
  • Operating margins contract from 14.4% in 4QCY11 to 11.7% in 4QCY12.
  • Other income rises by 37.8% YoY, while interest expenses increase by 42.4% YoY.
  • Lower operating margins and higher interest expenses cause the profit before tax (PBT) to decline by 12.7% YoY.
  • Net profits decline by 46% YoY on account of higher tax incidence during the quarter.
  • During the calendar year 2012 (CY12), while sales increase by 11.3% YoY and net profits drop by 18.6% YoY.

Consolidated financial performance snapshot
(Rs m) 4QCY11 4QCY12 Change CY11 CY12 Change
Net sales 26,424 26,915 1.9% 100,021 111,306 11.3%
Expenditure 22,609 23,754 5.1% 83,160 91,616 10.2%
Operating profit (EBITDA) 3,815 3,161 -17.1% 16,861 19,690 16.8%
EBITDA margin 14.4% 11.7%   16.9% 17.7%  
Other income 1035 1425 37.8% 4261 4909 15.2%
Depreciation 1,356 1,433 5.7% 5,100 5,689 11.5%
Interest 191 272 42.4% 969 1147 18.3%
Profit before tax & exceptional items 3,303 2,882 -12.7% 15,053 17,764 18.0%
Exceptional gain/ (loss) - -   - (3,354)  
Tax (1,291) 401 -131.1% 2,155 3,911 81.5%
Profit after tax 4,594 2,481 -46.0% 12,898 10,499 -18.6%
Net profit margin 17.4% 9.2%   12.9% 9.4%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         57.8  
P/E (times)         21.5  
* On a trailing 12-months basis

What has driven the performance in 4QCY12?
  • On a standalone basis, ACC's net sales rose marginally by 1.9% YoY during the quarter ended December 2012. For the full calendar year 2012, the company reported sales volumes of 24.11 m tonnes, higher by 1.6% YoY.

  • On the cost front, major cost heads such as raw material costs, freight and forwarding expenses, and other expenses increased by 2.8% YoY, 1.7% YoY and 0.5% YoY respectively (as a percentage of net sales). However, power & fuel expenses declined by 2.7% YoY (as a percentage of net sales). Operating margins contracted from 14.4% in 4QCY11 to 11.7% in 4QCY12.

    Operating cost break-up
    (Rs m) 4QCY11 4QCY12 Change
    Raw materials consumed 3,806 4,006  
    Purchases of stock-in-trade 431 414  
    Change in inventory 345 1,003  
    Total raw materials cost 4,582 5,423 18.4%
    % of net sales 17.3% 20.1%  
    Employee expenses 1,692 1,830 8.2%
    % of net sales 6.4% 6.8%  
    Power & fuel expenses 5,879 5,252 -10.7%
    % of net sales 22.2% 19.5%  
    Freight & forwarding expenses 4,988 5,536 11.0%
    % of net sales 18.9% 20.6%  
    Other expenses 5,470 5,714 4.5%
    % of net sales 20.7% 21.2%  
    Total operating expenditure 22,609 23,754 5.1%
    % of net sales 85.6% 88.3%  

  • Other income increased by 37.8% YoY during 4QCY12. Depreciation charges and interest expenses increased by 5.7% YoY and 42.4% YoY. During 1QCY12, ACC had retrospectively changed its depreciation method on fixed assets pertaining to Captive Power Plants from the 'Straight Line' method to 'Written Down Value' method. As per the company, this change gives a more suitable presentation and gives a systematic basis of depreciation charge. As a result, there was an additional depreciation charge of Rs 80.4 m during the current quarter and Rs 287 m for the full year ended December 2012. If not for the change in depreciation method, the net profit would have been higher by Rs. 51.5 m and Rs 2,459.5 m for the quarter and calendar year ended December.

  • At the bottomline level, net profits declined by 46% YoY on account of poor operating performance, higher interest expenses and change in depreciation method for captive power plants. Net profit margins contracted from 17.4% in 4QCY11 to 9.2% in 4QCY12.

  • During the year 2012, the company has acquired 100% stake in Singhania Minerals Pvt Ltd, a company engaged in limestone mining, for total sum of Rs 50 m.

  • The company has started work on its expansion project which is scheduled for completion in a phased manner by 2015. Post expansion, the company's cement manufacturing capacity would increase by 5 million tonnes.

  • The company's board of directors has declared a final dividend of Rs 19 per share for the calendar year ended 2012. Along with the interim dividend of Rs 11 per share, the total dividend for the calendar year stands at Rs 30 per share.

What to expect?
ACC's performance during the quarter was impacted by sluggish cement demand, drop in cement prices and continued pressure on operating costs. The slowdown over the short term, notwithstanding, we expect cement demand to grow at about 8% over the next few years.

At the current prices of Rs 1,244 the stock is trading at 21.5 times its trailing twelve month consolidated earnings. Based on our CY14 estimates, the stock is expected to give a return of about 14% CAGR over the next 2 years. As such, we change our view on the stock from 'Sell' to 'Hold' from a 2-year perspective.

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