ACC's Q1CY18 results (Neutral) - Higher realisations offset cost pressures
Q1CY18 result highlights
- PAT +16% yoy to Rs2.5bn:on higher volumes and realizations.
- Robust volume growth at 7.7% yoy to 7.11mt: led by continued ramp up of capacities in East. Central market, particularly UP, also saw a robust growth in demand as improvement in sand availability led to pick up in construction activity. Accordingly, revenues +15%yoy to Rs35.6bn.
- Higher east market and premium product volumes aid realisations: Adj. for Rs3.3bn RMC revenues (+16% yoy), realisations were up 6.4% yoy to Rs4536/t (higher prices in East and central mkt). On a qoq basis, realizations were up Rs59/t despite weak cement prices due to higher volumes from East (~Rs5-7/bag hike) and premium products (+18% yoy). Our channel checks suggest cement price hikes in Apr-18, notably South & West, which should support realizations going forward.
- Higher freight, P&F costs drive increase in costs (+5.5% yoy): Freight cost/t increased 12% yoy due to higher leads, rise in diesel prices and change in commercial terms. P&F cost/t increased 15% yoy due to rise in petcoke prices and limited linkage coal availability. RM cost/t increased 13% yoy due to steep increase in slag prices and flyash.
- Blended EBITDA/t at Rs596 (+15%yoy; +Rs16 qoq): led by higher realizations. Hence, EBITDA increased 24% yoy to Rs4.2bn.
- Royalty rate left unchanged: at 1% of sales for the next 3 years. Royalty paid to parent for CY17/1QCY18 stood at Rs1.3bn/Rs355mn
Key positives: Strong realizations and volumes
Key negatives: Higher freight and power cost
Impact on financials: CY18E/CY19E EPS unchanged at Rs56.7/Rs79.7
Valuations & view
ACC’s performance has improved over the past few quarters led by the recent commissioning of Jamul capacity (2.45mtpa cement capacity) and focus of group to grow volumes (likely market share gains in CY17). Accordingly, we estimate 30% earnings CAGR over CY17-19E, led by improving industry dynamics and volume ramp up. While the merger with Ambuja is not likely in near future, the Master Supply Agreement between ACC and Ambuja is likely to unlock some operational synergies driving down costs (3-5% PBT savings). However, we believe valuations of 11.2x CY19E EV/EBITDA and US$118 on CY19E EV/tonne, adequately capture the earnings uptick. Maintain Neutral.
Acc is a cement and concrete manufacturing group based in India. Co. is predominantly engaged in the production and selling ordinary portland cements, composite cements and special cements and ready mix concrete. In addition, Co. is engaged in the provision of consultancy services for the overseas markets and real estate development. Through its subsidiaries, Co. is also engaged in manufacturing and selling of rubber tire, cement machinery, part of machinery and cast articles of alloy steel; trading in cement transportation; and distributing bulk cement. Co.'s operations are organized along two primary business segments: Cement and Ready Mix Concrete.
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