ACC's Q3CY18 results (Outperformer) - Robust volume growth, offset by weak realisations
Q3CY18 result highlights
- PAT +16% yoy to Rs2.05bn: in line with estimates as strong volumes and cost efficiencies offset the lower than estimated realisations.
- Volume growth at 10% yoy to 6.55mt: led by sustained growth in East and central region, despite a high base and lean season. Hence, utilisations improved to 80% in the quarter.
- Realisations fell 2% qoq (+0.6% yoy): after adj. for Rs3bn RMC revenues (+6% yoy). The decline in realisations was a key area of disappointment and was attributed to lower prices in South–West markets, while share of premium products at 17% was steady on qoq basis. Our channel checks suggest cement price hikes in Oct-18 in Central and West mkts, which should support realizations going forward. Overall, revenues +10% yoy to Rs33.6bn.
- Higher freight drive higher costs (+1% yoy): Freight cost/t increased 17% yoy due to rise in diesel prices (+27% yoy) and higher warehousing charges. RM cost/t increased 7% yoy due to steep increase in prices of slag (+50% yoy). Key cost efficiency was seen in P&F cost/t which fell 1% yoy as higher petcoke prices (65% consumption share) were offset by higher usage of linkage coal and alternative fuels.
- Blended EBITDA/t at Rs570 (-4%yoy): led by weak realizations. Overall, EBITDA increased 6% yoy to Rs3.73bn.
Key positives: Robust volumes, decline in P&F costs yoy
Key negatives: Lower realisations
Impact on financials: Cut CY18/19E EPS by 5% to Rs57.5/Rs73.6
Valuations & view
ACC’s performance has improved over the past few quarters led by the focus of group to grow volumes (11% growth over CY16-18E). Accordingly, the higher utilisation levels (positive operating leverage), improved consumption norms, blending (higher use of slag) coupled with strong growth in premium products is enhancing profitability. Moreover, cost savings are likely to accrue as the operational synergies is realised between ACC & Ambuja as per Master Supply Agreement (3-5% PBT savings). Accordingly, we estimate 25% earnings CAGR over CY17-19E. We believe valuations of 11x CY19E EV/EBITDA and US$102 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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