Hold ACC; target of Rs 1260: Emkay

Emkay Global Financial Services has recommended hold rating on ACC with a target of Rs 1260, in its April 19, 2012 research report.

“ACC’s Q1CY12 APAT at Rs3.9bn (+11.3% yoy), came in line with estimates. Reported PAT at Rs1.55bn (-55% yoy) includes one time additional depreciation charge of Rs3.35bn as the company changed its method of providing depreciation on captive power plants from SLM to WDV with retrospective effect. Revenues at Rs28.6bn grew 19.3% yoy as cement volumes grew 9.1% yoy while realizations at Rs4256/t grew 9.3% yoy and 1.3% qoq. Though 1Q realisation at Rs4256/t came in line with our est, the same were lower than consensus (Which we estimate was ~Rs4375/t).”

“EBITDA at Rs6.16bn, +11.2% yoy, came in line with estimates with EBITDA /t at Rs917/t, up 2% yoy and 40% qoq. ACC’s total cost per tonne declined by 6% qoq (even though it increased 11.6% yoy due to higher P&F and freight expenses) largely driven by 12.8% qoq increase in volume, driving operating leverage. However as the recent cost increases like railway freight hike (+23% effective from March 6, 2012) & excise duty hike (+200 bps increased on March 16, 2012)) are to reflect in we expect cost pressures re-surfacing ahead. CIL’s coal price hikes post its wage hike would also add further pressure on energy costs. ACC plans to expand its capacity by setting up a new clinker production facility of 2.79 mtpa at Jamul, Chattisgarh with 3 grinding facilities at Jamul, Shindri (Jharkhand) and Kharagpur (West Bengal). The existing clinker and grinding lines at Jamul with capacity of 1.6mtpa will be phased out. This will effectively add net capacity of 4 mtpa. The project is expected to be completed by 2015 and the total cost for the project is estimated at Rs33 bn. The funding for the project would be through internal accruals as ACC’s cash and cash equivalents for CY11 stood at Rs29.5bn.”

“We downgrade our earnings estimates for CY12E and CY13E by 3% & 3.9% largely due to excise duty hikes, recent increase in power tariffs by some states and hike in royalty on coal. Though we still maintain ACC as our relative preferred pick vs Ambuja & Ultratech, on an absolute basis stock’s valuations at 8.4X EV/E & EV/T of USD140 for CY13 numbers leaves little upside from current levels. Maintain HOLD,” says Emkay Global Financial Services research report.

Non-Institutions holding more than 90% in Indian cos

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