Hold ACC; target of Rs 1420: FinQuest Securities

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Hold ACC; target of Rs 1420: FinQuest Securities

FinQuest Securities has recommended hold rating on ACC with a target of Rs 1420, in its February 13, 2012 research report.

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FinQuest Securities has recommended hold rating on ACC with a target of Rs 1420, in its February 13, 2012 research report.

"ACC's performance in Q4CY11 came in ahead of ours as well as consensus estimates driven primarily by healthy realization growth. The volumes improved 5% to 5.9 mn tonnes in Q4CY11 as the output from the new plants in Chanda and Wadi stabilized, while the capacities elsewhere were enhanced. The company's total revenue increased 22.3% to Rs 25.55 bn driven primarily by healthy realization growth witnessed during the quarter. The gross realization for the company rose 21.7% Y-o-Y (13% Q-o-Q) to Rs 4271 per tonne as the cement price in most of the major markets rose during the past several months. Demand showed signs of improvement in various markets, while in some markets price rise was due to logistic issues. Total volumes for the full year rose 11.5% to 23.7 mn tonnes. Operating costs for the company increased sharply during the quarter under review, however rise in realization helped setoff the cost increase during the quarter. The EBIDTA margin improved 100 bps Y-o-Y (310 bps Q-o-Q) to 17.3%."

"The raw material cost continued to remain high, while the power & fuel cost and freight expenses increased due to sharp increase in domestic and imported cost of coal and higher fuel expenses. After providing for finance charges (Depreciation allowance up 13.5% to Rs 1270 mn, interest cost up 39.7% to Rs 192 mn) the profit before tax increased 43.1% to Rs 3.4 bn. After providing for net tax credit of Rs 1.29 bn in Q4CY11 as compared to net tax credit of Rs 173 mn in Q4CY10, the net profit after tax came in at Rs 4.7 bn, 83.9% higher compared to Q4CY10. The net tax credit is after adjustment of credit of Rs 2.28 bn (Corresponding previous quarter Rs 820 mn) arising from reversal of tax provision related to earlier assessment years. The EPS for the quarter increased by 83.9% Y-o-Y to Rs.25 in Q4 CY10."

"The performance for the full year was impressive on the back of increased volumes and improved realization. ACC was on an expansion drive during the past few quarters and many of its units coming on stream led to volume improvement. The volumes for the full year rose 11.5% to 23.7 mn tonnes, while the realization improved 10% to Rs 3984 per tonne. Despite operating cost remaining higher due to increase in cost of domestic coal (coal prices of different grades increased by about 30%, while the cost of gypsum and fly ash also increased), the company posted a net profit growth of 18.3% to Rs 13.25 bn in CY11. The company's management believes that the prices are expected to remain volatile in the short-term due to demand-supply imbalances, while the cost pressures on account of rising cost of energy, logistics and raw material may impact the margins. Expected policy reforms, lower inflation and interest rates and high expected infrastructure investment (USD 1 trillion) in the 12th Five Year Plan is expected to boost the cement demand in CY12."

"The company is a Pan India player with major exposure in the south and the western region. We believe that the demand in south will pick up going ahead, while the demand in the western region is already strong. Thus the company is well positioned to increase its volumes as the demand in the southern market improves further. In view of the company's sales and realisation in Q4CY11 coming in better than our expectations, we are raising our net sales and EPS estimates for CY12 from Rs 110 bn and Rs 86 to Rs 111 bn and Rs 87.6 respectively. We had initiated coverage on the stock on 23rd November 2011, with a one year price target of Rs 1278, which was achieved on 6th February 2012. We believe that the company's key market will continue to post healthy growth, although most of these positives are already priced in the stock. While we revise our rating downward from 'Buy' to 'Hold', there is still some more upside left in the stock. As a result we revise our target price upward to Rs 1420 from our target of Rs 1278. At the current market price of Rs 1344 the stock is trading at PE of 15.3x and EV/EBIDTA of 7.6x CY12 earnings," says FinQuest Securities research report.

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