ACC's Q1CY19 results (Outperformer) - Costs drag profitability; Cement prices on uptick
Q1CY19 result highlights
- Adj. PAT +11.7% yoy to Rs2.74bn: led by sustained volume growth and improvement in realisations. Earnings were below estimates on higher than estimated costs.
- Volume growth sustains (+5.1% yoy): to 7.47mtpa led by sustained demand by government and infrastructure projects across regions, particularly East (sustained double digit growth), and focus on premium products (+23% yoy).
- Realisations +2% yoy (+1.2% or Rs55/t qoq): after adj. for Rs3.9bn RMC revenues (+18% yoy). The increase in realisation was led by higher prices in South and West markets (~35% of volumes) and sustained growth in premium products (+23% yoy; volume share at 16.5% vs 14% in 1QFY18). Overall, revenues +8.1% yoy to Rs39.2bn.
- Costs higher (+2.9% yoy): RM cost/t increased 6% yoy due to rise in slag prices, while freight cost was higher by 0.8% yoy/3% qoq due to increase in lead distance, partially offset by axle load benefits. Also, P&F cost/t were higher by 0.6% yoy/3.5% qoq led by lower availability of linkage coal. This was offset by restricting employee and other costs.
- Blended EBITDA/t at Rs711 (+2.9%yoy): led by improved realisations offset by higher costs. EBITDA grew 8.1% yoy to Rs5.31bn.
- Reported PAT at Rs3.38bn (+38% yoy): led by Rs995mn related to tax provision reversal of earlier years.
Impact on financials: 1% cut to CY19E/CY20E EPS – Rs72/83.
Valuations & view
There have been cost pressures in the quarter which has impacted profitability and is likely to ease going forward as transient factors normalise. ACC’s performance has improved over the past 2-3 years led by the group’s focus to grow volumes (11% CAGR over CY16-18E). Accordingly, positive operating leverage, focus on costs (employee and fixed costs contained at 4% CAGR over CY16-18), improved consumption norms, blending (higher use of slag) coupled with strong growth in premium products is enhancing profitability. On the other hand, improving industry dynamics is driving higher prices. Accordingly, we estimate 20% earnings CAGR over CY18-20E. We believe valuations of 9.5x CY20E EV/EBITDA and US$115 on EV/tonne are attractive. Maintain our Outperformer rating.
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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