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ACC: Slack performance
Jul 22, 2010

ACC has announced its 2QCY10 results. The company has reported 2.9% YoY and 26% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • On a standalone basis, topline declines by 2.9% YoY led by lower realisations and marginal decline in volumes.
  • Lower sales and higher cost of operation led to nearly 25% YoY decline in operating profits.
  • Poor show boils down to the bottomline that declines by 26% YoY.
  • It has also acquired 45% stake in Asian Concretes and Cements Pvt. Ltd for a consideration of Rs 3.68 bn.
  • The board of the company has recommended interim dividend of Rs 10 per share.

Financial performance snapshot
(Rs m) 2QCY09 2QCY10 Change 1HCY09 1HCY10 Change
Net sales 20,813 20,207 -2.9% 41,363 41,225 -0.3%
Expenditure 13,469 14,677 9.0% 27,546 29,473 7.0%
Operating profit (EBITDA) 7,344 5,530 -24.7% 13,818 11,752 -14.9%
EBITDA margin 35.3% 27.4% 33.4% 28.5%
Other income 563 597 6.0% 1,071 1,206 12.6%
Interest 159 141 -11.8% 527 268 -49.1%
Depreciation 784 962 22.7% 1,573 1,897 20.6%
Profit before tax/(loss) 6,963 5,024 -27.8% 12,788 10,793 -15.6%
Tax 2,107 1,435 -31.9% 3,884 3,152 -18.8%
Net profit 4,856 3,589 -26.1% 8,904 7,641 -14.2%
Net profit margin 23.3% 17.8%   21.5% 18.5%  
No of shares (m)         187.9  
Diluted EPS (Rs)*         78.8  
P/E (times)         10.4  
*trailing twelve month earnings

What has driven performance in 2QCY10?
  • On a standalone basis, ACC's sales declined by 2.9% YoY during the quarter ended June, 2010. The fall in revenues is the result of flat to lower volumes (0.7% YoY fall in dispatches) and lower realisations (net sales divided by dispatches). Realisations are not attractive because of it being a slack season for the construction activity. Additionally planned capacities have started becoming operational exerting downward pressure on cement prices. Logically flat cement sales would be attributed to the fact that it is a slack season, so demand for cement is lower. There is one more factor that has impacted sales. The same being availability of wagons. Wagon availability problem persists and has adversely impacted dispatches.

  • Lower sales and increase in cost of operation resulted in 25% YoY fall in operating profits. The petroleum prices have increased recently. Moreover, problem of availability of key input materials like slag and fly ash at several plants delayed stabilisation of recently commenced cement units. Thus, bottlenecks on the operation front and rising prices of input costs impacted margins. The company has reported 7.9% contraction in EBITDA margins during the 2QCY10.

  • Poor show at the operating level boiled down to the bottomline. Thus, despite reporting lower interest expense and higher other income, ACC reported 26% YoY fall in net profits. During the quarter the company has also witnessed increase depreciation charges on account of it's commissioning of new capacities.

What to expect?
The quarter has been particularly bad owing it to be a slack season. We expect the company to end the current calendar year with a near flat growth in bottomline. ACC's is focused on to stabilize operations of recently commenced units. Its major expansion project of 3 m tonnes of cement capacity at Maharashtra is nearing completion. The project also includes commission of captive power plant of 25 MW. The commissioning of planned capacities and on set of monsoons has resulted in downward pressure on cement prices. Southern region in particular has witnessed sharp fall in cement prices. However, these are short to medium term concerns. 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.

At the current price of Rs 816, the stock is trading at an EV/tonne of little over Rs 4,100 based on our CY12 estimates, making it fairly valued as per the replacement cost method.

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