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ACC: Hit by low volumes, realisations

Oct 28, 2010

ACC has announced its 3QCY10 results. The company has reported 16.9% YoY and 77% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • On a standalone basis, topline declines by 16.9% YoY led by lower realisations as well as a drop in volumes.
  • Lower sales coupled with higher cost of operation leads to operating profits declining by nearly 75% YoY.
  • The poor performance at the operating level percolates down to the bottomline which shows a fall of 77% YoY.

Financial performance snapshot
(Rs m) 3QCY09 3QCY10 Change 9mCY09 9mCY10 Change
Net sales 19,694 16,372 -16.9% 61,057 57,597 -5.7%
Expenditure 13,015 14,672 12.7% 40,561 44,145 8.8%
Operating profit (EBITDA) 6,679 1,700 -74.5% 20,497 13,452 -34.4%
EBITDA margin 33.90% 10.40%   33.60% 23.40%  
Other income 509 809 58.9% 1,580 2,015 27.5%
Interest 135 162 20.0% 662 430 -35.0%
Depreciation 796 911 14.4% 2,369 2,808 18.5%
Profit before tax/(loss) 6,257 1,436 -77.0% 19,045 12,229 -35.8%
Tax 1,900 435 -77.1% 5,784 3,587 -38.0%
Net profit 4,357 1,001 -77.0% 13,261 8,642 -34.8%
Net profit margin 22.10% 6.10%   21.70% 15.00%  
No of shares (m)         187.9  
Diluted EPS (Rs)*         61  
P/E (times)             16.1  

What has driven performance in 3QCY10?
  • On a standalone basis, ACC's sales declined by 16.9% YoY during the quarter ended September, 2010. The fall in revenues was a result of lower volumes (3.7% YoY fall in dispatches) and lower realisations (net sales divided by dispatches). Volumes were low as one plant was shut down for hook-up and commissioning. Realisations were poor because of dampened demand as severe monsoon and floods stalled construction activity. Excess supply exerted further downward pressure on cement prices.

  • Lower sales and increase in cost of operation resulted in the 74% YoY fall in operating profits. The rise in operational expenditure was mainly due to hike in prices of inputs such as slag, fly ash and power.

  • Depreciation and interest expenses were higher due to the ongoing capacity expansion and commission of various projects. Therefore, this coupled with the poor performance at the operating level led the bottomline to plunge 77% YoY.

What to expect?
This quarter has been the worst for ACC in the current down-cycle and things are expected to improve here onward. The post monsoon season has seen prices firming up and the demand picking up. Construction and infrastructure activity is also expected to pace up. The next couple of quarters may witness some strain due to the demand-supply mismatch but going forward surplus supply is expected to be absorbed. Further, the government's thrust on infrastructure and the revival of real estate demand are likely to support growth of the industry at around 9% over the next two to three years.

The new Wadi II kiln (3.2 MTA) is ramping up as per plan. Work on other major expansion project at Chanda (3 MTA) in Maharashtra is nearing completion and will be commissioned in the last quarter of the calendar year and thereafter ramped up gradually. The 25 MW captive power plant was commissioned this quarter.

At the current price of Rs 985, the stock is trading at an EV/tonne over Rs 5,100 based on our CY12 estimates, making it expensively valued as per the replacement cost method.

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