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ACC: PAT up 70% in Sept quarter - Views on News from Equitymaster
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ACC: PAT up 70% in Sept quarter
Nov 5, 2014

ACC has announced its financial results for the third quarter of the calendar year 2014. During the quarter ended September 2014, the company's standalone sales and net profit increased by 9.4% YoY 69.6% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increased by 9.4% YoY during the quarter driven by higher realisations.
  • Operating profit grew by 35.8% YoY as EBITDA margin expanded from 9% in 3QCY13 to 11.2% in 3QCY14.
  • Net profit increases by 69.6% YoY during the quarter.
  • During the nine month period of the calendar year 2014, sales and net profit grew by 6.3% YoY and 3.3% YoY respectively.

Standalone financial performance snapshot
(Rs m) 3QCY13 3QCY14 Change 9MCY13 9MCY14 Change
Net sales 25,054 27,419 9.4% 82,018 87,180 6.3%
Expenditure 22,801 24,359 6.8% 70,961 76,467 7.8%
Operating profit (EBITDA) 2,254 3,060 35.8% 11,057 10,713 -3.1%
EBITDA margin 9.0% 11.2%   13.5% 12.3%  
Other income 1,023 1,172 14.6% 3,406 3,716 9.1%
Depreciation 1,444 1,393 -3.5% 4,214 4,136 -1.8%
Interest 110 115 3.8% 397 334 -15.9%
Profit before tax & exceptional items 1,722 2,723 58.2% 9,851 9,959 1.1%
Exceptional gain/ (loss) - -   - -  
Profit before tax 1,722 2,723 58.2% 9,851 9,959 1.1%
Tax 514 674 31.3% 1,675 1,513 -9.7%
Effective tax rate 29.8% 24.8%   17.0% 15.2%  
Profit after tax 1,208 2,049 69.6% 8,176 8,447 3.3%
Net profit margin 4.8% 7.5%   10.0% 9.7%  
No of shares (m)       187.7 187.7  
Diluted EPS (Rs)*         59.8  
P/E (times)         24.9  
*trailing twelve month earnings

What has driven performance in 3QCY14?
  • On a standalone basis, ACC's net sales increased by 9.4% YoY during the quarter ended September 2014. Cement sales volume increased by 1.4% YoY from 5.54 m tonnes in 3QCY13 to 5.62 m tonnes in 3QCY14.

  • On the cost front, raw material costs reported a significant decline. This resulted in an expansion in the operating profit margin from 9% in 3QCY13 to 11.2% in 3QCY14.

    Operating cost break-up
    (Rs m) 3QCY13 3QCY14 Change
    Raw materials consumed 3,776 4,303  
    Purchases of stock-in-trade 463 573  
    Change in inventory 509 (757)  
    Total raw materials cost 4,749 4,119 -13.3%
    % of net sales 19.0% 15.0%  
    Employee expenses 1,723 1,915 11.2%
    % of net sales 6.9% 7.0%  
    Power & fuel expenses 5,566 6,253 12.3%
    % of net sales 22.2% 22.8%  
    Freight & forwarding expenses 5,068 5,961 17.6%
    % of net sales 20.2% 21.7%  
    Other expenses 5,695 6,112 7.3%
    % of net sales 22.7% 22.3%  
    Total operating expenditure 22,801 24,359 6.8%
    % of net sales 91.0% 88.8%  

  • Other income increased by 14.6% YoY during 3QCY14.

  • While depreciation charges declined marginally by 3.5% YoY, interest expenses increased by 3.8% YoY.

  • Tthe effective tax rate during the quarter came down to 24.8% in 3QCY14 as against 29.8% in 3QCY13.

  • Given the expansion in operating profit margin, lower depreciation and decline in effective tax rate, net profit increased by 69.6% YoY. Net profit margin expanded from 4.8% in 3QCY13 to 7.5% in 3QCY14.
What to expect?
ACC's performance in the year so far has remained subdued. For the nine month period ended September 2014, the volume growth in cement sales has been lukewarm at 2%.

The new government's focus on housing and infrastructure development as well as the possibility of easing inflationary pressures due to declining international crude oil prices, cement demand should strengthen in the coming times.

At the current prices of Rs 1,492 the stock is trading at 24.9 times its trailing twelve month standalone earnings. We had recommended 'Buy' on ACC in our StockSelect dated May 31, 2013. Since our recommendation, the stock is up more than 22%. We maintain our HOLD view on the stock from a 2-3 year perspective.

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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