Stock Market Result Update on ACC for 3QCY2011

Stock Market Result Update on ACC for 3QCY2011 with an Neutral recommendation.

 For 3QCY2011, ACC reported lower-than-expected performance. The company’s net profit grew by 67.5% to `168cr on low base. Adjusted net profit growth was even lower at 34.8% yoy to `123cr – adjusting for `61.7cr (`12.7cr in  3QCY2010) of incentives and sales tax write-back pertaining to previous years. Despite the substantial 11.5% yoy improvement in realization, OPM rose only marginally by 133bp yoy to 14.8% due to the surge in raw-material, freight and power and fuel costs. At current levels, we maintain our Neutral view on the stock.

OPM at low 14.8%, impacted severely by cost pressures: During 3QCY2011, ACC posted 31.3% yoy growth in its standalone net sales to `2,150cr. The company’s dispatches for the quarter stood at 5.69mn tonnes, up 17.8% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. Realization was also higher by 11.5% yoy at `3,779/tonne. However, on a sequential basis, realization declined by 6.8%. ACC’s per tonne raw-material, power and fuel and freight costs rose by 20.2%, 26.8% and 25.3%, respectively, on a yoy basis, thereby negating the improvement in realization and resulting in low OPM of 14.8%. The company, which sources ~60% of its coal requirements through linkages, was hit severely by price hikes carried out by Coal India in March 2011.

Outlook and valuation: We expect ACC to register an 18.4% CAGR in its top line over CY2010-12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 9.5% over the mentioned period due to higher operating costs. At current levels, the stock is trading at EV/EBITDA of 7.8x and EV/tonne of US$135, based on CY2012 estimates. We maintain our Neutral view on the stock.