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ACC: Wagon availability impacts volumes - Views on News from Equitymaster
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ACC: Wagon availability impacts volumes
Apr 22, 2010

ACC has announced its 1QCY10 results. The company has reported a 2.3% YoY growth in sales and flat bottomline growth. Here is our analysis of the results.

Performance summary
  • On a standalone basis, topline grows by merely 2.3% YoY led by higher cement prices.
  • Operating profits decline by 3.9% YoY, as cost of operation grows at a faster pace as compared to growth in net sales.
  • However, net profit reports stable growth. This is led by 20% YoY growth in other income.
  • During the quarter, the company has acquired 100% stake in Encore Cement & Additives Pvt. Ltd. This company is engaged in manufacturing and supply of ground slag.
  • It has also acquired 45% stake in Asian Concretes and Cements Pvt. Ltd for a consideration of Rs 3.68 bn.


Financial performance snapshot
(Rs m) 1QCY09 1QCY10 Change
Net sales 20,551 21,018 2.3%
Expenditure 14,077 14,796 5.1%
Operating profit (EBITDA) 6,474 6,222 -3.9%
EBITDA margin 31.5% 29.6%  
Other income 508 609 19.8%
Interest 368 127 -65.4%
Depreciation 789 935 18.5%
Profit before tax/(loss) 5,825 5,768 -1.0%
Tax 1,777 1,717 -3.4%
Net profit 4,048 4,051 0.1%
Net profit margin 19.7% 19.3%  
No of shares (m) 187.9 187.9  
Diluted EPS (Rs)*   85.5  
P/E (times)   10.8  
*trailing twelve month earnings

What has driven performance in 1QCY10?
  • On a standalone basis, ACC reported a mere 2.3% YoY growth in net sales. The growth has come in on account of price improvements witnessed in few regions. Otherwise cement volumes were lower marginally (1.1% YoY) during 1QCY10. Non-availability of wagons resulted in lower dispatches for the company. We believe that the price improvement must have been the result of the logistics issue witnessed by the industry. Whatever is the case, higher cement prices resulted in higher turnover of the company.

  • During 1QCY10 operating profits have declined by 3.9% YoY. The prices of major input costs for cement manufacturing such as coal, slag, gypsum, fly ash and petroleum products are on the rise. The same seems to have resulted in higher cost of operation for the company. Apart from materials consumed, employee and other manufacturing costs have also increased. While the company was able to lower its power and fuel cost. This could be the result of company’s initiative to set up captive power plants and usage of alternate fuels.

  • However, net profits have reported stable growth. This is primarily on account of nearly 20% YoY growth in other income.

  • Excluding other income, fall in bottomline would be tad lower as compared to operating profits. The same is the result of substantial fall in finance charges.

What to expect?
ACC’s expansion plans are progressing as per schedule. The government’s thrust on infrastructure built up and announced stimulus packages are likely to support growth of the industry at around 9% over the next two to three years. However, the upcoming capacities are expected to exert downward pressure on cement prices, apart from resulting in reduction in utilisation level. Delays in upcoming projects and continued logistics issue are expected to provide some cushion to softening cement prices.

At the current price of Rs 920, the stock is trading at an EV/tonne of little over Rs 4,900 based on our CY12 estimates, making it fairly valued as per the replacement cost method. We shall soon update our research report on the stock.

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