Emkay Global Financial Services' report on ACC
ACC’s Q2CY15 operating performance disappointed in the quarter after an improved performance in Q1 due to higher operating cost (up 5.3% yoy; 1.9% above our estimates). EBITDA at Rs2.8bn was 12.5% below our estimate of Rs3.2bn and OPM was at 9.4% against our estimate of 11.3% EBITDA/t at Rs435 (est. Rs541) declined substantially by 29%yoy/37%qoq
Sales volume of 6.2mt (-2.4% yoy/+6.5%qoq) was higher than our estimate of 5.9mt; whereas; realization (Rs4,460/tn) decline of 3.5% qoq was in-line with estimates
Downgrade CY15e/CY16e EBITDA by 18.7%/14.5% on account of cost pressure (limestone mining suspension at Chaibasa will lead to higher freight costs), lower cement prices and delay in commissioning of grinding units at Jamul and Sindri
Valuation at 17.9x/12.5x CY15e/CY16e EV/EBITDA appears rich and factors in recovery in cement demand and prices. Maintain Hold with revised price target of Rs1,410 (earlier: Rs1,661). Though, we believe that EV/tonne of US$122 (cheapest amongst the large cement companies) will restrict the downside but expect the stock to languish at current levels given lack of triggers for cost improvement
Operational performance during the quarter was again a disappointment with sequential increase in operating costs like employee and overhead expense. Suspension of limestone mining at Chaibasa from July 3, ’15 will again lead to cost pressures going ahead. Expansion plans of the company have been delayed by 2-3 quarters and we expect volume growth to remain below industry growth rate till mid-CY16e. We expect the company to benefit from cost saving measures only in 2HCY16e post commissioning and stabilization of new capacities in the East region. Though, we expect earnings to improve going forward led by improvement in cement prices post monsoon, we believe that these positives are largely factored in the stock price. We maintain Hold rating on the stock with revised PT of Rs 1,410 (earlier: Rs1,661)", says Emkay Global Financial Services research report.
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