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ACC: Modest recovery in cement sales
Jul 26, 2014 | Updated on Jul 28, 2014

ACC has announced its financial results for the second quarter of the calendar year 2014. During the quarter ended June 2014, the company's standalone sales increased by 7.8% YoY while net profits decreased by 7% YoY. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increased by 7.8% YoY during the quarter as sales volumes increase by 3.8% YoY.
  • Operating profits decline by 7.7% YoY as EBITDA margin contracts from 15.5% in 2QCY13 to 13.3% in 2QCY14.
  • Depreciation and interest expenses during the quarter remained almost near the same levels as in 2QCY13.
  • Net profits decline by 7% YoY in line with the decline in operating profit.
  • Net profit margin declines from 9.3% in 2QCY13 to 8% in 2QCY14.
  • During the first half of the calendar year 2014, while sales grew by 4.9% YoY, net profit declined by 8.2% YoY. Net profit margin for the period declined to 10.7% from 12.2% in 1HCY13.
  • The company's board of directors has approved an interim dividend of Rs 15 per share for the calendar year 2014.

Standalone financial performance snapshot
(Rs m) 2QCY13 2QCY14 Change 1HCY13 1HCY14 Change
Net sales 27,904 30,090 7.8% 56,964 59,761 4.9%
Expenditure 23,569 26,090 10.7% 48,161 52,108 8.2%
Operating profit (EBITDA) 4,335 4,000 -7.7% 8,803 7,653 -13.1%
EBITDA margin 15.5% 13.3%   15.5% 12.8%  
Other income 908 876 -3.5% 2,383 2,544 6.8%
Depreciation 1,387 1,377 -0.7% 2,770 2,743 -1.0%
Interest 179 111 -37.8% 287 219 -23.5%
Profit before tax & exceptional items 3,677 3,388 -7.9% 8,129 7,236 -11.0%
Exceptional gain/ (loss) - -   - -  
Profit before tax 3,677 3,388 -7.9% 8,129 7,236 -11.0%
Tax 1,086 978 -10.0% 1,161 838 -27.8%
Effective tax rate 29.5% 28.9%   14.3% 11.6%  
Profit after tax 2,591 2,410 -7.0% 6,968 6,398 -8.2%
Net profit margin 9.3% 8.0%   12.2% 10.7%  
No of shares (m)         187.7  
Diluted EPS (Rs)*         55.3  
P/E (times)         25.9  
*trailing twelve month earnings

What has driven performance in 2QCY14?
  • On a standalone basis, ACC's net sales increased by 7.8% YoY during the quarter ended June 2014. Cement sales volume increased by 3.8% YoY from 6.12 m tonnes in 2QCY13 to 6.35 m tonnes in 2QCY14.

  • On the cost front, raw material costs and freight & forwarding expenses witnessed an increase of 0.7% YoY and 1.8% YoY (as a percentage of net sales). On the other hand, power and fuel expenses and other expenses decreased by 0.5% YoY and 1.6% YoY respectively (as a percentage of net sales). The operating profit margin contracted from 15.5% in 2QCY13 to 13.3% in 2QCY14.

    Operating cost break-up
    (Rs m) 2QCY13 2QCY14 Change
    Raw materials consumed 4,014 4,360  
    Purchases of stock-in-trade 410 520  
    Change in inventory 55 153  
    Total raw materials cost 4,479 5,033 12.4%
    % of net sales 16.1% 16.7%  
    Employee expenses 1,721 1,936 12.5%
    % of net sales 6.2% 6.4%  
    Power & fuel expenses 5,896 6,207 5.3%
    % of net sales 21.1% 20.6%  
    Freight & forwarding expenses 5,761 6,755 17.3%
    % of net sales 20.6% 22.5%  
    Other expenses 6,170 6,158 -0.2%
    % of net sales 22.1% 20.5%  
    Total operating expenditure 24,027 26,090 8.6%
    % of net sales 86.1% 86.7%  

  • Other income decreased by 3.5% YoY during 2QCY14.

  • While depreciation charges declined marginally by 0.7% YoY, interest expenses dropped by 37.8% YoY.

  • Tax expenses declined by 10% YoY as the effective tax rate during the quarter came down to 28.9% in 2QCY14 as against 29.5% in 2QCY13.

  • At the bottomline level, net profit decreased by 7% YoY. Net profit margin contracted from 9.3% in 2QCY13 to 8% in 2QCY14.

  • During the first half of the calendar year 2014, while net sales increased by 4.9% YoY, net profit declined by 8.2% YoY. Net profit margin during 1HCY14 stood at 10.7% as against 12.2% in 1HCY13.
What to expect?
At the current prices of Rs 1,435 the stock is trading at 25.9 times its trailing twelve month standalone earnings. We shall give a detailed analysis of the quarter results and the outloDuring the quarter ended June 2014, cement sales have shown a slight pick-up compared to the March 2014 quarter when volume sales grew by a meagre 0.9%. The new government's focus on housing and infrastructure development should strengthen the demand momentum in the coming times. Profitability for the company continues to remain under pressure owing to persistent inflationary trend in raw material and logistics expenses.

The company's board of directors has approved an interim dividend of Rs 15 per share for the calendar year 2014. It must be recalled that the interim dividend for the previous calendar year was Rs 11 per share.

At the current prices of Rs 1,435 the stock is trading at 25.9 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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