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ACC: Topline flat, bottomline tanks
Oct 23, 2013

ACC has announced its financial results for the third quarter of the calendar year 2013 (3QCY13). During the quarter ended September 2013, the company's standalone sales increased marginally by 3.2% YoY while net profits plunged by 51.4% YoY. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increase marginally by 3.2% YoY during the quarter.
  • Operating profits decline by 46.5% YoY due to higher costs and lower realisations.
  • Operating margins contract from 17.3% in 3QCY12 to 9% in 3QCY13.
  • Other income rises by 4.8% YoY, while interest expenses decrease by 57.1% YoY.
  • Net profits dip by 51.4% YoY on account of poor operating performance.

Standalone financial performance snapshot
(Rs m) 3QCY12 3QCY13 Change 9MCY12 9MCY13 Change
Net sales 24,310 25,087 3.2% 80,316 82,150 2.3%
Expenditure 20,095 22,833 13.6% 63,807 71,093 11.4%
Operating profit (EBITDA) 4,215 2,254 -46.5% 16,509 11,057 -33.0%
EBITDA margin 17.3% 9.0%   20.6% 13.5%  
Other income 975 1023 4.8% 3,455 3,406 -1.4%
Depreciation 1,352 1,444 6.8% 4,014 4,214 5.0%
Interest 257 110 -57.1% 874 397 -54.6%
Profit before tax & exceptional items 3,581 1,722 -51.9% 15,077 9,851 -34.7%
Exceptional gain/ (loss) - -   (3,354) -  
Profit before tax 3,581 1,722 -51.9% 11,723 9,851 -16.0%
Tax 1,094 514 -53.1% 3,504 1,675 -52.2%
Effective tax rate 30.6% 29.8%   29.9% 17.0%  
Profit after tax 2,487 1,208 -51.4% 8,220 8,176 -0.5%
Net profit margin 10.2% 4.8%   10.2% 10.0%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         56.3  
P/E (times)         20.6  
*trailing twelve month earnings

What has driven performance in 3QCY13?
  • On a standalone basis, ACC's net sales rose marginally by 3.2% YoY during the quarter ended September 2013 driven by 2.6% YoY increase in cement sales volumes to 5.54 m tonnes.

  • On the cost front, raw material costs witnessed a sharp increase of 7.5% YoY (as a percentage of net sales). Employee expenses, freight & forwarding expenses and other expenses increased by 1.1% YoY, 0.4% YoY and 0.4% YoY respectively (as a percentage of net sales). However, power & fuel expenses declined by 1.1% YoY (as a percentage of net sales). The company was unable to pass on the cost increases and as a result, operating margins contracted from 17.3% in 3QCY12 to 9% in 3QCY13.

    Operating cost break-up
    (Rs m) 3QCY12 3QCY13 Change
    Raw materials consumed 3,076 3,861  
    Purchases of stock-in-trade 301 606  
    Change in inventory (382) 509  
    Total raw materials cost 2,994 4,976 66.2%
    % of net sales 12.3% 19.8%  
    Employee expenses 1,405 1,724 22.7%
    % of net sales 5.8% 6.9%  
    Power & fuel expenses 5,666 5,580 -1.5%
    % of net sales 23.3% 22.2%  
    Freight & forwarding expenses 4,826 5,084 5.4%
    % of net sales 19.9% 20.3%  
    Other expenses 5,204 5,469 5.1%
    % of net sales 21.4% 21.8%  
    Total operating expenditure 20,095 22,833 13.6%
    % of net sales 82.7% 91.0%  

  • Other income increased by 4.8% YoY during 3QCY13. While depreciation charges increased by 6.8% YoY, interest expenses decreased by 57.1% YoY.

  • At the bottomline level, net profits dropped by 51.4% YoY. Net profit margins contracted from 10.2% in 3QCY12 to 4.8% in 3QCY13.

What to expect?
During the quarter, the company reported lacklustre topline growth on account of the overall slowdown in the economy and prolonged monsoons. On the other hand, the inflationary trend in input costs, diesel prices and railway freight as well as volatility in the currency exacerbated cost pressures. The sluggishness in demand strained realisations which in turn resulted in substantial margin erosion.

The sluggishness in the housing and infrastructure sector is likely to persist over the medium term. Hence, an immediate revival in cement demand and profitability seems unlikely. However, the long term prospects of the sector remain stable owing to the huge demand for housing and infrastructure in the country.

At the current prices of Rs 1,157 the stock is trading at 20.6 times its trailing twelve month standalone earnings. We had recommended a '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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