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ACC: High input costs weigh on the margins
Aug 2, 2011

ACC has announced its 2QCY11 and 1HCY11 results. The company has reported 19% YoY rise in sales and 6% YoY decline in net profits for the quarter ended June 2011. Here is our analysis of the results.

Performance summary
  • On a standalone basis, net sales increase by 19% YoY led by higher sales volume.
  • Rising input costs lead operating profits to decline marginally by 0.5% YoY.
  • Higher interest and depreciation costs further lead the bottomline to drop by 6% YoY.


(Rs m) 2QCY10 2QCY11 Change 1HCY10 1HCY11 Change
Net sales 20,207  24,030 18.9% 41,225 48,012 16.5%
Expenditure 14,677 18,527 26.2% 29,473 36,966 25.4%
Operating profit (EBITDA) 5,530 5,503 -0.5% 11,752 11,045 -6.0%
EBITDA margin 27.4% 22.9%   28.5% 23.0%  
Other income 597 771 29.1% 1206 1440 19.4%
Interest 141 271 92.5% 268 524 95.4%
Depreciation 962 1,158 20.4% 1,897 2,283 20.4%
Profit before tax/(loss) 5,024 4,845 -3.6% 10,793 9,678 -10.3%
Tax 1,435 1,479 3.0% 3,152 2,806 -11.0%
Net profit 3,589 3,366 -6.2% 7,641 6,872 -10.1%
Net profit margin 17.8% 14.0%   18.5% 14.3%  
No of shares (m)         187.7  
Diluted EPS (Rs)*         55.6  
P/E (times)*         18.1  
* (Book value as on 30th June 2011)

What has driven performance in 2QCY11?
  • On a standalone basis, ACC’s net sales rose by 18.9% YoY during the quarter ended June 2011. The rise in revenue was led by a rise of 11.8% YoY in sales volume.

  • However, operating profit dropped marginally by 0.5% YoY on the back of steep rise of 26.2% YoY in operating costs. Power and fuel costs rose substantially by 8.7% YoY (as a percentage of net sales) on account of high coal prices. Overall inflationary environment caused freight costs to shoot up by 3.9% YoY (as a percentage of net sales). Depreciation and interest expenses were higher due to the ongoing capacity expansion and commissioning of various projects.

  • As a result, net profits declined by 6.2% YoY during the quarter. The net profit margins declined from 17.8% in 2QCY10 to 14% in 2QCY11.

  • The company’s board of directors has declared an interim dividend of Rs 11 per share for the calendar year 2011.

What to expect?
The cement industry is still in the throes of significant overcapacity. At the same time, the slowdown in construction and infrastructure spending has played spoilsport on the demand side. Hence, in the short to medium term, the scenario for the cement industry seems bleak.

At the current price of Rs 1,003 the stock of ACC is trading at an EV/tonne over Rs 5,000 based on our CY13 estimates, making it fairly valued as per the replacement cost method.

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