Motilal Oswal neutral on ACC

Motilal Oswal has maintained neutral rating on ACC with a target of Rs 1601, in its February 7, 2013 research report.
 
“ACC's operating performance is below estimate, with EBITDA of ~INR3.17b (v/s est INR3.33b), impacted by lower-than-estimated realizations. However, higher other income and lower tax boosted reported PAT to INR2.39b (v/s est INR1.88b), a 15% YoY decline. Results are not comparable as merger for RMC business subsidiary is fully done in 4QCY12 (for CY12). Volumes were flat YoY (+10% QoQ) to 5.94MT (v/s est 6MT). Grey cement realizations declined by 7.5% QoQ (-0.8% YoY) to INR4,166/ton (v/s est INR4,327/ton), as ACC was aggressive on pricing to achieve year-end targets. Net sales (ex RMC) declined by 1% YoY (-2% QoQ) to INR24.7b (v/s est INR26.1b). RMC business revenues in 4QCY12 fell 18% YoY (-1.5% QoQ), reflecting weak activity in organized housing and infrastructure projects.”
 
“Costs were lower than est, driven by savings on energy side (due to higher contribution of linkage coal). Total cost (ex-RMC) fell ~2.3% QoQ (+2.4% YoY). EBITDA fell 18% YoY (-25% QoQ) to INR3.17b (v/s est INR3.33b), translating to EBITDA margins of 10.2% (-520bp YoY, -710bp QoQ v/s est 12.8%); EBITDA/ton was INR530 (down ~INR120/ton YoY and INR250/ton QoQ v/s est INR552). Company indicated that royalty of 1% to Holcim would be in-lieu of technical services fees (excl IT services fees) paid to Holcim currently. Effectively, net increase in royalty would be 0.6-0.7%. The board recommended total dividend of INR30/share (incl interim dividend of INR11/share v/s CY11 INR28/share). We downgrade EPS for CY13E/CY14E by 9%/5% to INR72.5/93.5 respectively to factor for (a) lower volumes (8% growth) and realization (~INR9/12 per bag), (b) higher royalty (by 0.7%) and (c) merger of RMC subsidiary. The stock trades at 7.2x CY14E EV/EBITDA and USD114/ton. Maintain Neutral with a target price of INR1,601 (~9x CY14E EV/EBITDA),” says Motilal Oswal research report.

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