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ACC: Sales & profits rise on lower base - Views on News from Equitymaster
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ACC: Sales & profits rise on lower base
Nov 3, 2011

ACC has announced its consolidated financial results for the quarter and nine-month period ended September 2011. The company has reported 30% YoY and 85% YoY rise in sales net profits for the quarter. Here is our analysis of the results.

Performance summary
  • On a consolidated basis, net sales increase by 30% YoY led by higher sales volume and realisations.
  • Operating profits during the quarter grow by 32% YoY; operating margins improve by 10 basis points.
  • Higher operating profits and higher other income lead the bottomline to surge by 85% YoY.
  • During the nine-month period ended September 2011, sales and net profits rose by 19% YoY and 1% YoY respectively.

Consolidated financial performance snapshot
(Rs m) 3QCY10 3QCY11 Change 9MCY10 9MCY11 Change
Net sales 17,592 22,834 29.8% 61,664 73,634 19.4%
Expenditure 15,941 20,655 29.6% 48,309 60,551 25.3%
Operating profit (EBITDA) 1,651 2,179 32.0% 13,355 13,083 -2.0%
EBITDA margin 9.4% 9.5%   21.7% 17.8%  
Other income 818 1570 91.9% 2032 3189 57.0%
Interest 164 253 54.3% 442 777 75.8%
Depreciation 1002   1,289 28.6%  3,080 3,745 21.6%
Profit before tax/(loss) 1,303 2,207 69.4% 11,865 11,750 -1.0%
Tax  437 638 45.8%  3,591 3,445 -4.1%
Profit after tax 865 1,569 81.4% 8,273 8,305 0.4%
Share of earnings of associates (+) -3 23   13 72  
Minority interest (-) 0 0   0 0  
Net profit  863 1,593 84.6% 8,287 8,376 1.1%
Net profit margin 4.9% 7.0%   13.4% 11.4%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         57.9  
P/E (times)*         20.5  
**trailing twelve month earnings

What has driven performance in 3QCY11?
  • On a consolidated basis, ACC’s net sales rose by 29.8% YoY during the quarter ended September 2011. Cement sales volume grew by almost 17.8% YoY to 5.69 m tonnes during the quarter from 4.83 m tonnes in the corresponding quarter of the previous year.

  • Operating profits grew by 32% YoY; operating margins improved marginally from 9.4% in 3QCY10 to 9.5% in 3QCY11. While cost of raw materials, employee expenses and other expenditure showed a year-on-year decline during the quarter (as a percentage of net sales), power and freight costs went up on a year-on-year basis.

  • Other income grew by 91.9% YoY during 3QCY11. As a result, net profits surged by 81.4% YoY. Net profit margins improved from 4.9% in 3QCY10 to 7% in 3QCY11.

  • The apparent year-on-year jump in sales and profits during the quarter is on account of a lower base effect during the corresponding quarter of the previous year. However, if you compare the company’s current performance with the second quarter of calendar year 2011 (2QCY11), the profitability was lower.

  • The production from company’s cement projects in Wadi and the new line in Chanda have both stabilised.

What to expect?
The cement industry is still in the throes of significant overcapacity and the same is expected to plague the industry for 2-3 years. At the same time, the inflationary environment has led to a slowdown in construction and infrastructure spending, thus, affecting demand. Though the good monsoon would bring in some demand, the overall slowdown in the economy will have its negative effects. To further add, the significant rise in the cost of inputs such as coal, petroleum products, slag and fly ash will continue to weigh on the margin front.

At the current price of Rs 1,186 the stock of ACC is trading at an EV/tonne over Rs 6,100 based on our CY13 estimates, making it expensively valued as per the replacement cost method. As such, we maintain our cautious view on the stock from a 3-year perspective.

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