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SELL
Sector outlook: Positive
Cement
ACCs Q4CY11 earnings were in-line with our estimates. (EBITDA/t of Rs657 vs 676/t estimated, +77% YoY). However, not much can be read into the quarterly results as these are derived numbers. For CY11, the company reported an EBITDA/t of Rs716, which is lower than CY10. This despite a realization gain of 11.0% and volume increase of 11.5%, as inputs costs led by power and fuel costs surged. Adjusted PAT grew 5.7%. Subsequent to a Supreme Court judgment on extension of tax benefits on expansion in a backward area, in case of a separate company, ACC took a tax credit of Rs2,279mn resulting in a reported PAT of Rs13,253mn (+18%). Volume growth estimates We remain sanguine about the CY12 volume growth estimates for the company. The company will not add any capacity in the next two years and is likely to sit on cash. Nearly 10mn tpa (~30%) of its cement capacity is in South (Wadi and Madukkarai) and utilizations are not likely to cross 70% for the next 2-3 years. Thus, utilizations cannot be higher than ~88%, assuming 95% utilization for the rest of India capacity. Hence, maximum possible CAGR for ACC is ~6%, even though the demand may grow faster for the country. Valuation and view We have increased our CY12/CY13 estimates to factor in higher realization and input prices. (Please refer Exhibit 01). We continue to value the companys capacities in South at a 20% discount to replacement cost, resulting in a weighted average discount of 6.6%. We recommend a SELL with a price target of 1,016, from the earlier 987/share. Our price target implies 8.5x CY12 EV/EBITDA and 16.1x P/E. Quarterly financials (Standalone)
Y/E Dec (Rs mn) Q4CY11 25,027 5,836 23.3 3,764 15.0 11,533 46.1 3,894 15.6 1,270 192 2,956 458 3,414 -1,291 (37.8) 4,705 2,280 2,425 9.7 Q4CY10 19,576 4,513 23.1 2,995 15.3 9,983 51.0 2,086 10.7 1,119 137 2,142 242 2,383 0 (173) (7.2) 2,556 820 1,736 8.9 Q3CY11 21,499 5,524 25.7 3,329 15.5 10,443 48.6 2,204 10.3 1,199 253 1,738 574 2,312 637 27.5 1,675 1,675 7.8 39.7 44.8 2,388 9.7 1.6 (4.4) 84.0 180.8 43.2 47.7 86.7 490 76.7 531 YoY (%) 27.8 QoQ (%) Q4CY11E 16.4 24,530 5,691 23.2 3,234 13.2 11,673 47.6 3,932 16.0 1,211 253 2,837 574 3,411 0 1,023 30.0 2,388 97.0 0.1 (1.0) (47.1) Variance (%) 2.0
ACC Limited
Key financials (Y/E December) (Rs mn) Net sales Growth (%) EBITDA EBITDA (%) PAT Growth (%) Diluted EPS
CY11
94,387 22.3 16,991 18.0 10,973 5.7 70.4
CY12E CY13E
109,905 16.4 19,557 17.8 11,877 8.2 63.2 120,967 10.1 21,004 17.4 12,928 8.8 68.8
Net sales Power & fuel expenses % of sales Freight costs % of sales Other expenditure % of sales Operating profit OPM (%) Dep. and amortization Interest
Valuation/Ratios (x) P/E P/B EV/EBITDA EV/Sales RoE (%) RoCE (%)
CY11
19.7 3.6 14.0 2.5 16.1 19.2
CY12E CY13E
22.0 3.4 12.1 2.2 15.9 15.5 20.2 3.1 11.3 2.0 16.0 15.7
EBT Other income PBT Excep. item (as reported) Provision for tax -effective tax rate PAT (Reported) Excep. item (Post tax) PAT (Adjusted) NPM (%)
Source: Company, Fortune Research Note: Tax credit pertaining to earlier years of 2,280mn in Q4CY11 (Rs820 in Q4CY10)
1 Fortune Group
Fortune Group
Volumes growth subsided as base effect kicked in (Wadi became operational in Q4CY11)
5.6
5.7
4QCY09
1QCY10
2QCY10
3QCY10
4QCY10
1QCY11
2QCY11
3QCY11
YoY(%)
Source: Company
3,834
3,585
3,767
3,490
3,778
3,390
3,893
4,039
4,220
Realizations improve
4QCY11
657
352
372
387
4QCY09
1QCY10
2QCY10
3QCY10
4QCY10
1QCY11
2QCY11
3QCY11
4QCY11
Source: Company
ACC
Fortune Group
641 490 498 447 493 526 512 539 467 591 599 585 534 559
616
581
Input costs increase driven by power & fuel and freight costs (YoY)
585
635
752
707
731
781
799
777
956
963
984
4QCY09
1QCY10
2QCY10
3QCY10
4QCY10
1QCY11
2QCY11
3QCY11
P&F costs/tonne
Freight cost/tonne
RM Cost/tonne
Source: Company
ACC
4QCY11
CY09
80,272 12.0 15,397 19.2 10,544 13.1 29,528 36.8 24,803 30.9 3,421 21,383 843 20,540 2,404 0 22,944 6,877 30.0 0 0 16,067 20.0 32.5% 0 16,067 32.5
CY10
77,173 (3.9) 15,987 20.7 10,703 13.9 34,943 45.3 15,540 20.1 3,927 11,613 568 11,046 3,570 0 14,615 3,414 23.4 0 0 11,201 14.5 (30.3%) 820 10,381 (35.4)
CY11
22.3 21,832 23.1 14,017 14.9 41,547 44.0 16,991 18.0 4,753 12,238 969 11,269 4,135 0 15,404 2,152 14.0 0 0 13,253 14.0 18.3% 2,280 10,973 5.7
CY12E
16.4 25,347 23.1 17,256 15.7 47,744 43.4 19,557 17.8 5,208 14,349 761 13,587 3,381 0 16,968 5,090 30.0 0 0 11,877 10.8 (10.4%) 0 11,877 8.2
CY13E
10.1 28,256 23.4 18,812 15.6 52,894 43.7 21,004 17.4 5,369 15,635 605 15,030 3,439 0 18,469 5,541 30.0 0 0 12,928 10.7 8.8% 0 12,928 8.8
Balance sheet
CY09
1,879 58,283 60,162 0 5,500 169 5,669 3,493 69,324 68,263 26,680 21,562 63,145 14,756 7,790 2,037 50 7,464 5,604 22,945 20,603 10,919 31,522 (8,578) 0 69,324
CY10
1,880 62,815 64,695 0 5,099 139 5,238 3,615 73,548 80,770 29,945 15,628 66,452 17,027 9,150 1,783 561 10,800 5,239 27,533 20,940 16,525 37,464 (9,931) 0 73,548
CY11E
1,879 70,043 71,923 0 5,000 107 5,107 5,184 82,214 96,773 34,698 4,353 66,429 16,250 10,997 2,604 150 16,526 5,903 36,179 26,104 10,540 36,644 (465) 0 82,213
CY12E
1,879 75,763 77,643 0 5,000 46 5,046 5,184 87,872 97,773 39,906 6,353 64,220 16,250 12,235 2,472 0 23,436 5,903 44,046 26,104 10,540 36,644 7,402 0 87,872
CY13E
1,879 82,535 84,415 0 3,000 15 3,015 5,184 92,614 102,773 45,275 4,353 61,851 16,250 11,816 2,787 0 31,366 5,903 51,872 26,104 11,255 37,359 14,513 0 92,614
Sources of funds
Equity capital Reserves and surplus Shareholders funds Minority interest Secured loans Unsecured loans Total loan funds Deferred tax liab. Net Total liabilities Appl. of funds Gross block Accumulated depn. Capital WIP Net fixed assets Other investments Inventories Sundry debtors Other current assets Cash and Cash equivalents Loans and advances Total current assets Current liabilities Provisions Total current liab. Net current assets Misc. expenditure Total assets
CY09
188 188 85.6 85.4 103.7 320.1 16.3 4.3 3.0 9.6 29.4 27.8 0.1 N/M
CY10
188 188 59.7 59.5 80.5 344.2 23.3 4.0 3.1 15.3 16.6 17.1 0.1 N/M
CY11E
188 188 70.6 70.4 95.8 382.7 19.7 3.6 2.5 14.0 16.1 19.2 0.1 N/M
CY12E
188 188 63.2 63.2 90.9 413.1 22.0 3.4 2.2 12.1 15.9 15.5 0.1 N/M
CY13E
188 188 68.8 68.8 97.4 449.2 20.2 3.1 2.0 11.3 16.0 15.7 0.0 N/M
Cash flow Net profit Depreciation Change in working capital Change in deferred tax liability Provisions and other adjustments Net Cash from operating activities Capital expenditure Sale of assets
CY09
16,067 3,421 6,138 135 25,761 (15,840)
CY10
11,201 3,927 4,690 123 19,940 (7,234)
CY11E
13,253 4,753 (3,741) 1,568 15,833 (4,729)
CY12E
11,877 5,208 (957) 16,129 (3,000)
CY13E
12,928 5,369 820 19,117 (3,000)
Valuation (x)
P/E Price/Book value EV/Sales EV/EBITDA
Sale / (Purchase) of Investments (7,966) (2,270) Net Cash used in Investing Activities (23,806) (9,505) Dividend and Dividend Tax Increase/ (decrease) in debt Others Net cash used in financing activities (5,051) 849 (131) (6,677) (431) 9
777
(3,952) (3,000) (3,000) (6,157) (131) 132 (6,157) (62) (0) (6,157) (2,031) 1 (8,187) 7,930 23,436 31,366
Increase (decrease) in cash (2,379) Cash at the beginning of the year 9,842 Cash at the end of the year 7,464
Source: Company, Fortune Research Estimates
ACC
Fortune Group
Sell (<-10%)
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ACC