ACC's Q2CY19 results (Outperformer) - Sharp price hikes drives profitability
Q2CY19 result highlights
- Adj. PAT +22% yoy to Rs4.5bn: led by sharp improvement in realisations partially offset by muted volumes and higher costs. Earnings were above estimates on higher than estimated realisations.
- Volume growth slows down (-0.6% yoy): to 7.2mtpa led by slowdown in government and infrastructure projects across regions on account of general elections.
- Sharp realisation uptick (+7.7% yoy; 10.9% qoq): adj. for Rs3.7bn RMC revenues (+14% yoy). The increase in realisation (+Rs502/t qoq) was led by higher prices (Rs35-40/bag) across markets particularly in North (~40% of volumes) and East (~30% of volumes) as also sustained growth in premium products (+9% yoy). Hence, revenues increased 8.1% yoy to Rs41.5bn.
- Costs higher (+6.5% yoy): P&F cost/t were higher by 9.2% yoy/6.9% qoq led by higher premium on e-auction coal, higher prices of imported coal and usage of high cost petcoke inventory. Freight cost increased by 1.2% yoy/2.1% qoq due to higher lead distance. This was partially offset by lower employee costs and lower RM costs led by supply chain efficiency, source and product mix optimisation.
- Blended EBITDA/t jumps to Rs1086 (+17.7%yoy): led by sharp improvement in realisations, partially offset by muted volumes and higher costs. Hence EBITDA grew 17.1% yoy to Rs7.82bn. Reported PAT at Rs4.51bn +37% yoy due to VRS cost of Rs438mn in 2QCY18.
Impact on financials: No change in CY19E/CY20E EPS of Rs72/83.
Valuations & view
ACC saw a strong performance on sharp improvement in realisations during the quarter. While the lean season will drive muted volumes and price corrections, we expect demand to gradually improve led by government spend on infrastructure and drive resultant pricing power. Concurrently, cost pressures are likely to subside on back of lower petcoke prices as also focus on fixed costs (employee and fixed costs contained at 4% CAGR over CY16-18), improved consumption norms, blending (higher use of slag), etc. Accordingly, we estimate 20% earnings CAGR over CY18-20E. We believe valuations of 9x CY20E EV/EBITDA and US$104 on EV/tonne are attractive. Maintain our Outperformer rating on the stock.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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