ACC's Q4CY18 results (Outperformer) - Robust volume growth and cost efficiencies
Q4CY18 result highlights
- PAT +48.5% yoy to Rs2.53bn:led by sustained volume growth and stable fixed costs (interest & depreciation). Earnings were marginally below estimates on lower than estimated realisations.
- Volume growth sustains (+8.4% yoy): to 7.5mtpa led by sustained demand across regions and focus on premium products.
- Realisations +2.1% yoy (-2% or Rs100/t qoq): after adj. for Rs3.6bn RMC revenues (+13% yoy). The realisation decline was led by lower prices across markets. However, higher share of premium products at 18% (+100bps qoq). Overall, revenues +11% yoy to Rs37.89bn.
- Costs contained (+1.2% yoy): RM cost/t increased 15.4% yoy due to rise in slag prices, while freight cost was contained at 1.2% yoy due to benefits from increased axle load and lower diesel prices. Also, P&F costs were flat yoy led by improved mix towards linkage coal and efficiencies. Further, fixed costs were muted on cost efficiencies.
- Blended EBITDA/t at Rs538 (+12.3%yoy): led by strong revenue growth and improved operational efficiencies. Overall, EBITDA increased 21.7% yoy to Rs4.03bn.
- CY18 performance strong: adj. PAT +22% yoy to Rs10.8bn as revenues +12% (+8.3% vols; +3.1% realn). Costs were up 11% yoy (higher RM and P&F costs). RMC EBITDA +16.5% yoy to Rs1.34bn. Blended EBITDA/t +9% yoy to Rs631, driving 18% yoy in EBITDA to Rs17.9bn. Reported PAT +65% yoy to Rs15bn on Rs5bn tax write back.
Impact on financials: No change to CY19E EPS of Rs73.3
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, 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. Going forward, cost savings are likely to accrue as operational synergies are realised between ACC & Ambuja as per Master Supply Agreement (3-5% PBT savings). Accordingly, we estimate 21% earnings CAGR over CY18-20E. We believe valuations of 10x CY19E EV/EBITDA and US$94 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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