A. K. Stockmart Pvt. Ltd.

ACC Cement Ltd. CMP 984

“Struggle with Poor volumes & rising costs” Target Price 900
Q3CY10 - Result update Potential Downside 9%

REDUCE Performance suffered a setback in terms of volume and realisation:

ACC Cement Ltd (ACC) posted a decline of 79.2% in its net profit for
BSE 500410
Q3CY10 at Rs 863.1 mn, compared with Rs 4155.1 mn in the previous year
NSE ACC corresponding quarter. Total income during the period down by 14.3% to
Reuters ACC.BO Rs 18113.0 mn against Rs 21146.6 mn last year.
Bloomberg ACC IN
EBIDTA for the quarter declined by 68.6% to Rs 2172.4 mn, while the EBIDTA
Industry Cement
margins dropped by 20.7% to 12.0%. While the net margins declined by
Market Cap (Rs. Mn) 184970 14.8% to 4.8%. EPS for the quarter stood at Rs 4.6.
Equity (Rs. Mn) 1879.4
The dispatches for the quarter stood at 4.83 mnT, down by 3.6% on YoY
Face Value (Rs.) 10
and production for the quarter stood at 4.63 mnT, down by 8.3% on YoY.
52WkH/L 1049/700 The realisation for the quarter stood at Rs 3642 per tonne, declined
Sensex 20166 significantly 12.2% on YoY and 11.3% on QoQ basis.
Nifty 6066
The drop in revenues was mainly on account drop in realization and
dispatches hit the company’s performance. The net profit dropped
Shareholding Pattern as on 30th
significantly due to lower operating performance and increase in
September 2010
depreciation, interest cost. The increased raw material costs, power, fuel
8%
cost and other operating expenses resulted in lower operating profit.

15% The volume of clinker production and also cement came down due to
shutdown at Wadi II for hook-up and commissioning for most period of
the quarter. Market conditions were weak in off takes and prices due to
46% severe monsoon and floods. The cost of production was also impacted
due to hike in input costs for slag, fly ash and power.
15%
Expansion projects on tract; new capacity to boost volumes: The major
expansion project at Chanda in Maharashtra, which will add capacity of
3 mnT of cement together with a 25 MW power plant, is nearing
15% 1% completion; we expect this will add to volume growth in CY11E.
Promoter Mutual Funds
FIIs Public Outlook and valuations: Significant new cement capacity has been
Financial Inst./Banks Non Institutions
added in the industry in last six months, particularly in southern region
which, coupled with the monsoons, caused stress in the market,
Sensex v/s ACC Cement Ltd
especially in prices. However the prices have started increasing from
September 2010 onwards, we expect the industry will continue to
1.75 traverse a positive trend in terms of overall growth in the foreseeable
ACC Sensex future. On demand side we are bullish and expect industry to report 11-
1.50 12% growth in FY11E. Even we anticipate the prices to improve further
from current levels. But ACC’s newly commissioned capacities have not
1.25 been ramped up which failed to give volume growth and expect the
company to report subdued growth in dispatches for current year, this
1.00
may not lead to outperform the industry. At CMP of Rs 984, stock trades
at valuation of USD 136 and USD 125 EV/Tonne for CY11E and CY12E
respectively. We have valued the stock based on DCF valuation
0.75
methodology, due to poor performance we revised our earnings
Oct-09
Nov-09

Apr-10

Jun-10
Jul-10
Aug-10
Dec-09
Jan-10
Feb-10
Mar-10

May-10

Sep-10

estimate and we recommend “REDUCE” with a price target of Rs.900,

downside of 9% from the current levels.

(INR Net YoY YoY Adj YoY ROE RoCE P/E EV/EBITDA EV/Tonne
EBITDA EPS
million) Revenue (%) (%) PAT (%) (%) (%) (x) (x) (USD)

CY2010E 81,903.5 -3.4% 19,602.0 -20.5% 11,017.9 -29.5% 58.6 16.7% 49.4% 16.8 9.6 161
CY2011E 90,868.3 10.9% 20,840.0 6.3% 11,776.0 6.9% 62.7 15.8% 44.9% 15.7 8.8 136
CY2012E 103,066.9 13.4% 23,651.8 13.5% 13,869.8 17.8% 73.8 16.4% 42.0% 13.3 7.1 125
Source: A.K.Stockmart Institutional Research
1 22nd October 2010
 Financial Details: Consolidated:
Rs in mn
3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr
Particulars
200909 200912 201003 201006 201009
Net Sales 20773.8 19214.6 22,403.8 21668.9 17591.8
Other Operating Income 367.1 624.2 348.8 423.1 523.9
Share of Earnings of Associates 5.6 0.0 9.9 5.9 -2.7
Total Income 21,146.6 19,838.8 22,762.4 22,097.9 18,113.0
% YoY change 10.5% -5.0% 3.9% -0.8% -14.3%
% QoQ change -5.0% -6.2% 14.7% -2.9% -18.0%
TOTAL EXPENDITURE 14232.4 14907.9 16210.2 16158.6 15940.5
PBIDT 6914.2 4930.9 6552.2 5939.3 2172.4
PBIDT % 32.7% 24.9% 28.8% 26.9% 12.0%
PBIDT per tonne 1380.1 942.8 1174.2 1124.9 449.8
% YoY change 63.5% 1.1% -2.6% -22.4% -68.6%
% QoQ change -9.7% -28.7% 32.9% -9.4% -63.4%
Interest 135.5 180.6 136.3 141.6 164.2
PBDT 6778.7 4750.3 6415.9 5797.7 2008.2
Depreciation 876.5 1051.9 1,030.7 1046.8 1002.4
Other Income 150.3 200.4 260.5 181.0 294.3
Minority Interest -0.9 0.0 0.2 -0.02 -0.4
PBT 6053.4 3898.8 5645.5 4931.9 1300.5
Tax 1898.3 1091.7 1,716.7 1437.2 437.4
Reported Profit After Tax 4155.1 2807.1 3928.8 3494.7 863.1
Extra-ordinary Items 0.0 0.0 0.0 0.0 0.0
Adjusted Profit After Extra-
4155.1 2807.1 3928.8 3494.7 863.1
ordinary item
Net margins 19.6% 14.1% 17.3% 15.8% 4.8%
% YoY change 59.8% 7.9% -1.6% -25.8% -79.2%
% QoQ change -11.8% -32.4% 40.0% -11.0% -75.3%
EPS 22.14 14.9 20.9 18.6 4.6
% YoY change 59.9% 7.5% -1.8% -25.9% -79.3%
% QoQ change -11.8% -32.5% 40.0% -11.0% -75.3%
Source: A.K.Stockmart Institutional Research

2 22nd October 2010

 P&L account: Old estimates:
(Rs in mn)

Particular CY09 CY10E CY11E CY12E

Total Income 84827.1 89987.4 96465.6 104224.9
% YoY change 10.2% 6.1% 7.2% 8.0%
Total Expenditure 60172.9 65096.1 70671.5 76342.4
EBIDTA 24654.2 24891.2 25794.2 27882.5
EBIDTA % 29.1% 27.7% 26.7% 26.8%
% YoY change 48.1% 1.0% 3.6% 8.1%
Adjusted Net Profit 15639.0 14777.4 15276.8 16790.8
PAT % 18.4% 16.4% 15.8% 16.1%
% YoY change 42.2% -5.5% 3.4% 9.9%
EPS 83.2 78.6 81.3 89.3

Revised estimates:
(Rs in mn)

Particular CY09 CY10E CY11E CY12E

Total Income 84827.1 81903.5 90868.3 103066.9
% YoY change 10.2% -3.4% 10.9% 13.4%
Total Expenditure 60172.9 62301.5 70028.3 79415.0
EBIDTA 24654.2 19602.0 20840.0 23651.8
EBIDTA % 29.1% 23.9% 22.9% 22.9%
% YoY change 48.1% -20.5% 6.3% 13.5%
Adjusted Net Profit 15639.0 11017.9 11776.0 13869.8
PAT % 18.4% 13.5% 13.0% 13.5%
% YoY change 42.2% -29.5% 6.9% 17.8%
EPS 83.2 58.6 62.7 73.8
Source: A.K.Stockmart Institutional Research

Basanth Patil
Research Analyst
Email:- basanth.patil@akgroup.co.in
Tel:- 91-22 67544781

3 22nd October 2010

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4 22nd October 2010