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ACC: Good show despite slowdown

Apr 22, 2009

Performance summary
  • On a standalone basis, topline grows by robust 14% YoY led by 7% YoY growth both in volumes and realisations.
  • Tight control on costs boosts operating profits that grow by 38% YoY.
  • The 13% YoY growth in the bottomline is much lower than the growth in operating profits due to lower other income and more than six-fold growth in interest costs.

Financial performance snapshot
(Rs m) 1QCY08 1QCY09 Change
Net sales 17,958 20,551 14.4%
Expenditure 13,257 14,077 6.2%
Operating profit (EBITDA) 4,700 6,474 37.7%
EBITDA margin 26.2% 31.5%  
Other income 661 508 -23.2%
Interest 56 368 560.3%
Depreciation 713 789 10.6%
Profit before tax/(loss) 4,592 5,825 26.8%
Extraordinary Item 366;    
Tax 1,383 1,777 28.5%
Net profit 3,575 4,048 13.2%
Net profit margin 17.9% 19.7%  
No of shares (m) 187.8 187.9  
Diluted EPS (Rs)*   67.1  
P/E (times)   9.7  
*trailing twelve month earnings

What has driven performance in 1QCY09?
  • On a standalone basis, ACC reported 14% YoY growth in topline during 1QCY09 on the back of higher volumes and better realisations. Rural housing and infrastructural projects continued to prop up demand for the commodity. While the real estate sector has lost lustre, higher agricultural income has sustained growth of rural housing. Stimulus packages announced by the government also propped up demand for the commodity.

    Cost break up
    (as a % of sales) 1QCY08 1QCY09
    Consumption of raw materials 14.4% 13.9%
    Staff cost 4.4% 3.9%
    Power and fuel 19.1% 20.0%
    Outward freight 13.6% 13.5%
    Other expenditure 22.3% 17.2%

  • Operating profits reported robust 38% YoY growth owing to better realisations and tight control on costs. While power and fuel and fright costs scaled upwards, the company was able to lower all the other cost heads resulting into a 5.3% expansion in EBITDA margins.

  • Net profit growth stood at 13% YoY was lower than the growth in operating profits due to lower other income and more than six-fold growth in interest costs. If one excludes extraordinary income (profit on sale of investments, land and buildings) the growth in net profits was higher at 26% YoY.

What to expect?
ACC’s expansion plans are progressing as per schedule. The recently announced stimulus packages and higher agricultural income is likely to support growth of the industry at around 9% in 2009. However, the upcoming capacities are expected to exert downward pressure on cement prices, apart from resulting in reduction in utilisation level.

At the current price of Rs 652, the stock is trading at an EV/tonne of little over Rs 3,900 based on our CY10 estimates, making it fairly valued as per the replacement cost method. The company has displayed impressive performance but one must note that the first quarter of the calendar year is a peak season for construction activity. Bulk of the additional capacities are expected to go on stream post the second half of CY09 due to which margins are expected to come under pressure. Hence, we would like to wait for one more quarter before we review our estimates.

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