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ACC: Better prices aid growth

Oct 18, 2012

ACC has announced its results for the third quarter of the calendar year 2012 (3QCY12). During the quarter ended September 2012, the company's sales and net profits reported a rise of 14% YoY and 48% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increase by 14% YoY during the quarter driven by higher realisations.
  • Operating margins expand from 10.3% in 3QCY11 to 17.8% in 3QCY12.
  • Other income falls by 46% YoY, while depreciation charges increase by 13% YoY.
  • Improvement in operations results in 48% YoY rise in net profits. Net margins improve from 7.8% in 3QCY11 to 10.2% in 2QCY12.

Standalone financial performance snapshot
(Rs m) 3QCY11 3QCY12 Change 9MCY11 9MCY12 Change
Net sales 21,500 24,445 13.7% 69,359 80,826 16.5%
Expenditure 19,296 20,095 4.1% 56,262 63,807 13.4%
Operating profit (EBITDA) 2,204 4,350 97.4% 13,097 17,019 29.9%
EBITDA margin 10.3% 17.8%   18.9% 21.1%  
Other income 1561 840 -46.2% 3153 2946 -6.6%
Depreciation 1,199 1,352 12.7% 3,483 4,014 15.3%
Interest 253 257 1.5% 777 874 12.4%
Profit before tax & exceptional items 2,312 3,581 54.9% 11,991 15,077 25.7%
Exceptional gain/ (loss) - -   - (3,354)  
Tax 637 1094 71.9% 3,442 3,504 1.8%
Profit after tax 1,676 2,487 48.4% 8,548 8,220 -3.8%
Net profit margin 7.8% 10.2%   12.3% 10.2%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         68.8  
P/E (times)         20.6  
*trailing twelve month earnings

What has driven performance in 2QFY13?
  • On a standalone basis, ACC's net sales rose by 13.7% YoY during the quarter ended September 2012. The growth in the topline was driven by higher realisation as cement sales volumes declined by 5.1% YoY from 5.59 million tonnes (mt) in 3QCY11 to 5.4 m tonnes in 3QCY12.

  • On the cost front, all cost heads witnessed some moderation. Major cost heads such as power & fuel, freight and forwarding, and other expenses declined by 2.5%, 2% and 1.4% respectively (as a percentage of net sales). This led to improvement in operating margins from 10.3% in 3QCY11 to 17.8% in 3QCY12.

  • While other income declined by 46.2% YoY, interest expenses increased marginally by 1.5% YoY. During 1QCY12, ACC had retrospectively changed its depreciation method on fixed assets pertaining to Captive Power Plants from the 'Straight Line' method to 'Written Down Value' method. As per the company, this change gives a more suitable presentation and gives a systematic basis of depreciation charge. As a result, there was an additional depreciation charge of Rs 76 m during the current quarter and Rs 206.6 m for the nine month period ending September 2012. If not for the change in depreciation method, the net profit would have been higher by Rs. 52.7 m and Rs 2.4 bn for the quarter and nine month period ending September.

  • At the bottomline level, net profits grew by 48.4% YoY on account of easing cost pressures. Net profit margins improved from 7.8% in 3QCY11 to 10.2% in 3QCY12.

  • During the quarter, ACC acquired 100% stake in limestone mining company Singhania Minerals Pvt Ltd for a total consideration of Rs 50 m.

What to expect?
While ACC reported a lacklustre volume growth, better cement prices and moderation in operating costs boosted the company's profitability on a year-on-year basis. The slowdown over the short term, notwithstanding, we expect cement demand to grow at about 8% over the next few years.

At the current prices of Rs 1,420, the stock is trading at 20.6 times its trailing twelve month standalone earnings. At this level, the stock is trading at the upper end of our valuation band and leaves hardly any room for further gains. As such, we maintain our 'Sell' view on the stock from a 2-3 year perspective.

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