Hold ACC; target of Rs 1506: R K Global

R K Global has recommended hold rating on ACC with a target of Rs 1506 in its October 18, 2012 research report.

“ACC reported top-line of `24739mn during Q3CY12, performance was boosted by net realization which improved by 13.3% YoY, despite muted growth in cement volumes by just 2% YoY owing to the monsoon season. The company reported an EBITDA of `4644.1mn. However, EBITDA margins disappointed the most which stood at 17.8% compared to 23.4% previous quarter. It was restricted due to 6.7% increase in other expenses, 9.6% increase in raw material costs, and 3.3% and 2.6% increase in freight and power expenses respectively. On the Net profitability front the company reported Rs 2486.7 mn of PAT. PATM improved on a YoY basis from 7.8% in Q3CY11 to 10.2% in Q3CY12. However, they were below the previous quarters 14.8% levels.”
“Average realizations were up mainly on account of strong prices in the eastern market. Cement prices have firmed up further in the past two months in the key central and southern region, due to a delay in monsoon and plant problems for competitors in the key central region; we expect this trend to benefit ACC in Q4CY12. The Company had aggressively invested in RMC business in scaling up, but the slowdown in volumes has impacted profitability. Company has taken several initiatives to turn around the RMC business and focus is now on profitability than growth. The board approved the amalgamation of ACC Concrete with ACC.”
"We expect the cement prices to continue their upward journey. With the recent reform announcement and interest rate cuts, the demand environment for cement companies is turning favorable. Despite these positives, the impending CCI verdict and royalty issues with Holcim would act as overhang for the stock to perform from here-on. At CMP of Rs 1,402, ACC is trading at CY13E and CY14E, EV/EBITDA multiple of 11.5x and 10.7x, respectively. Alternatively, ACC is currently trading at CY12E EV/Tonne of $159/ tonne. ACC Concrete is a loss making RMC business, which had a EBIT loss of Rs 254m and PAT loss of Rs 238m in CY11. One should hold the stock with a target of Rs 1506,” says R K Global research report. FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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