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ACC: Higher realisations drive topline - Views on News from Equitymaster

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ACC: Higher realisations drive topline
Aug 2, 2012

ACC has announced its results for the second quarter of the calendar year 2012 (2QCY12). During the quarter, the company's sales and net profits reported a rise of 16% YoY and 24% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increase by 16% YoY during the quarter driven by higher volumes.
  • Operating margins expand marginally from 22.9% in 2QCY11 to 23.4% in 2QCY12.
  • Other income increases by 50% YoY, while interest costs go up by 11% YoY.
  • Improvement in operations results in 24% YoY rise in net profits. Net margins improve from 14% in 2QCY11 to 15% in 2QCY12.

Standalone financial performance snapshot
(Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
Net sales 24,030 27,778 15.6% 47,859 56,381 17.8%
Expenditure 18,527 21,270 14.8% 36,966 43,712 18.2%
Operating profit (EBITDA) 5,503 6,508 18.3% 10,893 12,669 16.3%
EBITDA margin 22.9% 23.4%   22.8% 22.5%  
Other income 771 1157 50.1% 1592 2106 32.2%
Depreciation 1,158 1,356 17.1% 2,283 2,662 16.6%
Interest 271 301 10.9% 524 617 17.7%
Profit before tax & exceptional items 4,845 6,009 24.0% 9,678 11,496 18.8%
Exceptional gain/ (loss) - -   - (3,354)  
Tax 1,479 1829 23.7% 2,806 2,409 -14.1%
Profit after tax 3,366 4,179 24.2% 6,873 5,733 -16.6%
Net profit margin 14.0% 15.0%   14.4% 10.2%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         64.5  
P/E (times)         20.4  
*trailing twelve month earnings

What has driven performance in 2QCY12?
  • On a standalone basis, ACC's net sales rose by 15.6% YoY during the quarter ended June 2012. Cement sales volumes rose by 2% from 5.93 m tonnes in 2QCY11 to 6.05 m tonnes in 2QCY12.

  • The balance addition to the topline was due to improvement in cement realisations. On the cost front, total raw material cost (including changes in inventory and purchase of stock-in-trade) increased by 1.2% as a percentage of net sales. The company witnessed an increase in the cost of all major inputs including slag, fly ash and gypsum. Freight and forwarding expenses also increased by 1% as a percentage of net sales on account of the steep hike in railway freight rates with effect from March 6, 2012. On the other hand, power & fuel costs as well as other expenditure declined by 1.9% YoY and 0.7% YoY respectively (as a percentage of net sales). This led to a marginal improvement in operating margins from 22.9% in 2QCY11 to 23.4% in 2QCY12.

  • Other income rose by 50.1% YoY during the quarter. Improvement in operating margins as well as higher other income resulted in 24.2% YoY rise in net profits. Net margins improved from 14% in 2QCY11 to 15% in 2QCY12.

  • The company's board of directors has recommended an interim dividend of Rs 11 per share.

What to expect?
ACC reported a decent growth in the topline during the quarter. Volume growth during the quarter remained lacklustre. The rise in the topline was mostly driven by increase in realisations. On account of the delayed monsoons, extended construction activity has kept cement prices firm. However, the inflationary environment continues to persist and cost pressures are likely to keep margins below historical levels.

In an order dated June 20, 2012, the Competition Commission of India (CCI) imposed a penalty of Rs 11.5 bn on ACC for alleged cartelisation and price manipulation. The company believes that it has a good case and is taking steps to appeal against the Order before the Competition Appellate Tribunal. As such, it has made no provision for the same in its books.

At the current prices of Rs 1,318, the stock is trading at 20.4 times its trailing twelve month standalone earnings. Given the high valuations, we maintain our 'Sell' view on the stock from a two-year perspective.

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