MOSL: ACC | Annual Report Update (Buy)-Profitability improves despite cost pressure
ACC | Annual Report Update: Profitability improves despite cost pressure; Increase in working capital impacts cash flow…
(ACC IN, Mkt Cap USD4.2b, CMP INR1552, TP INR1835, 19% Upside, Buy)
We have analyzed ACC’s CY18 annual report and the following are the key takeaways:
East, Central and North regions expected to drive demand over FY18-20E
- As per the management, India's total cement capacity stood at 502mt in CY18 and is expected to reach 550mt by CY20. The cement sector recorded a growth of ~8.5% during 2018 as compared to ~6% in 2017.
- The company expects the East, Central and North regions to drive the demand, going forward.
- As per Indian Brand Equity Foundation (IBEF), in FY 2019, the demand for cement is likely to grow by 7-8%, led by affordable housing, rural Individual Home Builders (IHBs) and infrastructure-led activities.
Cost pressure arising from higher raw material and fuel prices partly mitigated by improved efficiency
- ACC's raw material cost was impacted by higher slag prices. Its sustained efforts to improve flyash absorption enabled the company to reduce the clinker factor by producing a higher share of blended cement that helped mitigate the increase in slag prices. The increase in petcoke and coal prices was mitigated by fuel mix optimization and the use of WHRS. ACC's freight cost was impacted by higher FOR sales and a rise in diesel prices, the effects of which were partly mitigated by route optimization.
- During the year, ACC made efforts to reduce the impact of rising electrical energy cost by partly replacing grid power through the consumption of Open Access (OA) power from comparatively cheaper sources, resulting in savings of INR 168m in power cost.
- Despite the increase in costs, the company's EBITDA/t increased by 4% YoY to INR 745, led by better realization. ACC focused on the sale of premium products which increased by 36% YoY. Retail constituted 80% of the company's sales.
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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