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ACC: Bottomline outperforms expectations

Oct 28, 2009

Performance summary
  • On a standalone basis, revenues grow by a robust 10% YoY mainly led by firm prices.
  • Cost of operation declines by 3% YoY. Lower operational costs and higher sales lead to nearly 50% YoY growth in operating profits.
  • Apart from good show at the operating level, less than proportionate growth in depreciation and interest costs bolster bottomline.
  • Net profit growth stands at nearly 54% YoY.

Financial performance snapshot
(Rs m) 3QCY08 3QCY09 Change 9,CY08 9mCY09 Change
Net sales 17,909 19,694 10.0% 53,946 61,057 13.2%
Expenditure 13,448 13,015 -3.2% 40,637 40,567 -0.2%
Operating profit (EBITDA) 4,461 6,679 49.7% 13,308 20,490 54.0%
EBITDA margin 24.9% 33.9%   24.7% 33.6%  
Other income 581 509 -12.5% 1,704 1,587 -6.9%
Interest 116 135 16.5% 280 662 136.7%
Depreciation 736 796 8.1% 2,174 2,369 9.0%
Profit before tax/(loss) 4,190 6,257 49.3% 12,559 19,045 51.7%
Extraordinary items -   -     489 -   -100.0%
Profit from extraordinary activities 4,190 6,257 49.3% 13,047 19,045 46.0%
Tax 1,356 1,900 40.2% 3,923 5,785 47.5%
Net profit  2,834 4,356 53.7% 9,124 13,260 45.3%
Net profit margin 15.8% 22.1%   16.9% 21.7%  
No of shares (m)       188 188  
Diluted EPS (Rs)*         86.6  
P/E (times)         8.6  
*trailing twelve month earnings

What has driven performance in 3QCY09?
  • ACC has reported 10% YoY growth in revenues during 3QCY09 mainly backed by 10% YoY higher realisations. During the period under consideration, sales volumes have grown by merely 3% YoY. From this it is clear that growth has been mainly led by firm prices. The demand for the commodity has sustained during the quarter and the same has shored up the realisations. The company is one of the major players in the northern regions, which is witnessing steady growth in demand on account of infrastructural activities and commonwealth games.

  • Apart from focused cost control measures, softening of coal and crude prices seems to have enabled it to reduce its overall cost of operation. The benefit of lower input costs was partially offset by increase in cost of other raw materials like gypsum, slag and fly ash coupled with an increase in diesel prices. The royalty on limestone has also increased. Despite all this, operating profits grew by nearly 50% YoY..

  • Profit before tax grew in line with operating profits, reporting 49.3% YoY growth. However, the growth at the net level has come in higher at around 54% YoY. The same is the result of less than proportionate growth in tax charges.

What to expect?
While the company is expected to end the year in line with our expectations on topline front, it has outperformed our estimates on bottomline front. This is mainly on account of margin improvement beyond our expectations. The sustained demand and firm prices have also supported the margin expansion. However, these firm realisations are not sustainable over the medium term as bulk of the additional capacities, which are expected to go on stream starting second half of CY09, commence operations. While the near to medium term growth prospects of the Indian cement industry have been impacted, the long term growth story remains intact. This is mainly on account of government initiatives in the infrastructure and housing sectors that are likely to be the main drivers of growth for the industry in the long run.

Commodity stocks are valued at their replacement cost as it is the likely price at which one would be interested in acquiring the cement company. Even after taking into account a favourbale scenario, on the basis of asset valuation method, the stock is fairly valued at the current levels. At the current price of Rs 741, the stock is trading at an EV/tonne of around Rs 4,000 based on our CY11 estimates. We shall soon come out with our revised estimates.

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