ACC (ACC) | 1,793content.icicidirect.com/mailimages/IDirect_ACC_Q3CY17.pdf · Ramco Cement -8.3 -3.3 2.0 4.1 ACC (ACC) | 1,793 Research Analyst Rashesh Shah ... by better operating

October 18, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Healthy realisation drives margins…

ACC reported a good set of Q3CY17 numbers. The results were

better than our estimates on all fronts. The beat at topline level was

led by 17.6% YoY increase in volumes to 6.0 MT (vs I-direct estimate

of 5.3 MT) and 7.0% YoY increase in realisation to | 5,125/t (vs. I-

direct estimate of | 4902/t)

Revenues increased 25.8% YoY to | 3,054.5 crore (above I-direct

estimate of | 2,616.3 crore) led by 17.6% YoY increase in volumes

due to commissioning of Jamul plant (10% of overall capacity) and

healthy realisation

The EBITDA margin increased 196 bps YoY to 11.6% (vs. I-direct

estimate of 9.0%) due to operating leverage benefit. EBITDA/tonne

increased 28.9% YoY to | 592/t (vs. I-direct estimate of | 439/t)

Net profit increased 98.5% YoY to | 177.7 crore (vs. I-direct estimate

of | 144.6 crore) mainly led by 13.6% YoY increase in other income

and 4.0% YoY decline in interest expenses

Improving macro, capacity expansion to drive growth

Over the past few years ACC has reported subdued volume growth (1.3%

CAGR in CY10-16) led by a poor macro environment and absence of new

capacity addition. However, going forward, we expect cement demand to

improve on the back of higher infra spend by government especially on

roads and housing. Consequently, cement demand is expected to reach

311 MT by FY19E (i.e. at CAGR of 7.5%) vs. (CAGR of 4.7% over the last

five years). Apart from improving macro demand, the company’s

expansion in the eastern region by ~5 MT (of which 2.8 MT was already

commissioned at Jamul with rest to come up in Kharagpur) is expected to

drive volumes over the next few years (10.0% CAGR over CY16-CY18E).

Synergy benefit from acquisition of ACC by Ambuja to reduce cost…

The acquisition of ACC by Ambuja is expected to reduce cost through

consolidation of shared services (like finance, HR, marketing) vendor

consolidation and swapping of plants (to reduce lead distance). The

proposed restructuring is expected to result in synergy benefits of ~| 900

crore resulting in long term benefits for ACC and Ambuja. We expect the

benefits of synergies to start flowing in CY17E.

…cost rationalisation to further boost margins

ACC has one of the oldest manufacturing plants in the industry, resulting

in higher operating costs for it. However, the company is taking steps to

rationalise cost by increasing usage of low cost fuels. Similarly, use of

alternative fuel is expected to rise from the current 3% to 5% in the next

12 months. The company is also focusing on increasing the volume of

premium products (up 18.0% YoY in Q3CY17) and higher ex-factory sales

to reduce lead distance resulting in higher margins.

Improving growth, margin metrics key positives; maintain BUY

Macro tailwinds coupled with capacity expansion of 5 MT is expected to

result in 10.0% CAGR in volumes in CY16-18E. Further, cost control

initiatives like use of alternative fuels, better sales mix, reduction of

employees is expected to boost margins over next two years. In addition,

with implementation of Good and Service Tax (GST) there will be freight

cost rationalisation, which will further lead to margin expansion, going

forward. We expect the OPM to improve from 12.0% to 14.9%in CY18E.

Hence, we maintain our BUY recommendation on the stock with a revised

target price of | 2,100/share (i.e. valuing the stock at CY18E EV/tonne of

$177/tonne, 18.0x CY18E EV/EBITDA).

Rating matrix

Rating : Buy

Target : | 2100

Target Period : 12-15 months

Potential Upside : 17%

What’s Changed?

Target Changed from | 2050 to | 2100

EPS CY17E Unchanged

EPS CY18E Changed from | 68.1 to | 71.1

Rating Unchanged

Quarterly Performance

Q3CY17 Q3CY16 YoY (%) Q2CY17 QoQ (%)

Revenue 3,054.5 2,427.7 25.8 3,312.5 -7.8

EBITDA 353.0 233.0 51.5 495.1 -28.7

EBITDA (%) 11.6 9.6 196 bps 14.9 -339 bps

PAT 177.7 89.5 98.5 321.8 -44.8

Key Financials

| Crore CY15 CY16 CY17E CY18E

Net Sales 11432.8 10945.6 12652.8 13985.6

EBITDA 1173.0 1316.7 1766.2 2082.1

PAT 587.6 716.7 1132.8 1335.6

EPS (|) 31.3 38.1 60.3 71.1

Valuation summary

CY15 CY16 CY17E CY18E

PE (x) 44.8 44.6 29.7 25.2

Target PE (x) 67.2 55.1 34.8 29.5

EV to EBITDA (x) 27.7 24.2 17.9 15.0

EV/Tonne(US$) 176 173 151 149

Price to book (x) 4.0 3.9 3.6 3.2

RoNW (%) 7.0 8.3 12.0 12.9

RoCE (%) 6.0 8.0 12.0 13.4

Stock data

Amount

Mcap | 33690 crore

Debt (CY16) | 70 crore

Cash & Invest (CY16) | 1899 crore

EV | 31861 crore

52 week H/L | 1869 / 1257

Equity cap | 187.8 crore

Face value | 10

Particular

Price performance (%)

1M 3M 6M 12M

ACC -1.7 2.0 19.8 9.1

Ambuja Cement -1.6 6.8 14.1 10.6

Shree Cement 0.9 1.2 6.3 10.6

UltraTech Cement -4.9 -5.2 -0.4 -0.8

Ramco Cement -8.3 -3.3 2.0 4.1

ACC (ACC) | 1,793

Research Analyst

Rashesh Shah

[email protected]

Devang Bhatt

[email protected]

mailto:[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q3CY17 Q3CY17E Q3CY16 YoY (%) Q2CY17 QoQ (%) Comments

Net Sales 3,054.5 2,616.3 2,427.7 25.8 3,312.5 -7.8

The increase in revenues was mainly led by capacity expansion and a healthy pricing

scenario in the company's key markets

Other Incomes 85.8 150.0 75.5 13.6 166.3 -48.4

Raw Material Expenses 477.1 329.9 362.0 31.8 504.1 -5.3

Employee Expenses 200.8 208.2 186.9 7.4 218.2 -8.0

Change in stock -31.6 0.0 -71.2 -55.6 -102.2 NM

Power and fuel 673.2 528.4 536.2 25.5 684.7 -1.7

Higher usage of imported coal, caused by limited availability of auctioned coal and

higher pet coke prices led to increase in fuel expenses

Freight 803.4 680.5 599.3 34.1 875.3 -8.2 Higher diesel prices led to increase in freight cost

Others 578.7 635.2 581.5 -0.5 637.4 -9.2

EBITDA 353.0 234.2 233.0 51.5 495.1 -28.7

EBITDA Margin (%) 11.6 9.0 9.6 196 bps 14.9 -339 bps Operating leverage benefit and lower other cost led to margin expansion in Q3CY17

Interest 21.3 24.2 22.1 -4.0 22.5 -5.6

Depreciation 155.1 161.8 152.9 1.4 162.1 -4.3 The increase in depreciation was due to commissioning of Jamul plant

PBT 262.4 198.1 133.4 96.7 476.8 -45.0

Total Tax 84.7 52.5 43.9 93.0 155.0 -45.4

Adjusted PAT 177.7 144.6 89.5 98.5 321.8 -44.8 Increase in other income led to higher PAT during the quarter

Key Metrics

Volume (MT) 6.0 5.3 5.1 17.6 6.7 -11.6 Capacity expansion in the east led to 17.6% YoY growth in volumes

Realisation (|) 5,125 4,902 4,788 7.0 4,915 4.3

EBITDA per Tonne (|) 592 439 460 28.9 735 -19.4 Lower fixed cost/t led to higher EBITDA/t

Source: Company, ICICIdirect.com Research

Change in estimates

CY17E CY18E

(| Crore) Old New % Change Old New %Change Comments

Revenue 12,581.5 12,652.8 0.6 13,951.8 13,985.6 0.2

Capacity expansion coupled with macro tailwind is expected to drive

revenues over the next two years

EBITDA 1,761.8 1,766.2 0.2 2,057.4 2,082.1 1.2

EBITDA Margin (%) 14.0 14.0 -4 bps 14.7 14.9 14 bps Operating leverage benefit and cost efficiency to drive margins

PAT 1,132.4 1,132.8 0.0 1,279.1 1,335.6 4.4

EPS (|) 60.3 60.3 0.0 68.1 71.1 4.4


Assumptions

Comments

CY13 CY14 CY15 CY16 CY17E CY18E CY17E CY18E

Volume (MT) 23.9 24.2 23.6 23.0 25.4 27.8 25.5 28.0 Volume to increase at a CAGR of 10.0% over CY16-18E

Realisation (|) 4,556 4,742 4,838 4,682 4,977 5,026 4,933 4,983

EBITDA per Tonne (|) 572 518 496 544 695 748 691 735 We expect EBITDA/t of | 748/t in CY18E

EarlierCurrent



Annual Report Analysis

Loss in market share leads to volume decline: In CY16, the company

expanded its capacity by 2.8 MT, taking total capacity to 33.4 MT from

30.6 MT in CY15. The new capacity was commissioned in the second half

of the calendar year. The new capacity comprises a new clinkering line of

capacity 2.79 MT at Jamul and cement grinding units of capacity 1.10 MT

at Jamul and 1.35 MT at Sindri. However, despite capacity expansion,

ACC registered 2.7% YoY decline in volumes vs. industry growth of 5.0%,

which we believe is mainly due to a loss in market share.

Cost rationalisation helps to maintain stable margins: On the cost side,

the company undertook various cost saving measures like re-negotiation

of fly ash contracts (fly ash cost declined 5.9% YoY), changes in mix

optimisation and lower landed cost of gypsum (cost of gypsum declined

by 10.8% YoY), increased usage of pet coke (increased from 18.0% in

CY15 to 62.0% in CY16). Further, ACC was able to reduce cost of

generation at captive power plant by 2.4% YoY to | 4.56 per KWh in CY16

mainly due to better efficiencies. The average cost of purchased power

declined 3.1% YoY to | 6.3 per KWh in CY16. In addition, rationalisation

of advertising expenses (declined by | 29.6 crore to | 80.6 crore in CY16

mainly due to reduction in various promotional activities) and 10.0% YoY

decline in packaging cost per tonne led to 2.4% YoY decline in cost per

tonne. The cost structure may further improve in coming years mainly led

by better operating cost parameters at newly commissioned Jamul/Sindri

plant coupled with higher volumes, reduction in employees (reduced by

535 people to 7,833) and expected synergy benefit for ACC-ACEM over

next three years.

Depreciation on downward trajectory: During the year depreciation cost

declined by 7.2% YoY to | 615.1 crore mainly led by full depreciation of

few fixed assets. However, it was partly offset by capitalisation of Jamul

project in Q3CY16 and Sindri project in Q4CY16.

Poor return ratio continues: In the past two years, ACC has clocked

average RoE of 7.0%, which is the lowest in the past 10 years mainly due

to low utilisation (~71%), higher fixed cost and capacity expansion.

Better working capital management: Although there was a marginal

increase in inventory days (from 39 days to 40 days), increase in payable

days (from 96 days to 110 days) enabled the company to register

improvement in working capital cycle. As a result of this the company

was able to register | 565.3 crore improvement in operating cash flow.

Technical knowhow fees continue to rise: The company has paid | 107.9

crore (increased from nil in CY12 to ~18% of PAT in CY16) as technology

knowhow fees to Holcim Technology for technical support received by

ACC. In addition, remuneration, severance to top management,

independent directors and non-executive directors accounted for 3% of

PAT.

Dividend payout remains stable: The company declared a dividend of

| 17 per share (dividend payout ratio of 53%) in CY16, same as last year

(| 17 per share and dividend payout of 54% in CY15).

Technical knowhow fees trend

0.0

107.7112.91 112.76

107.9

0.0

20.0

40.0

60.0

80.0

100.0

120.0

CY12 CY13 CY14 CY15 CY 16

0.00

5.00

10.00

15.00

20.00

25.00

Technology know how fees as % of PAT

Dividend payout ratio

53

51

53

5554

48

49

50

51

52

53

54

55

56

CY12 CY13 CY14 CY15 CY16

Dividend payout ratio


Company Analysis

Pan-India presence to reduce regional risk

ACC is a pan-India player with an installed capacity of 33.4 MTPA

distributed across all regions, thereby insulating the company from any

weakness in a particular region. Out of the total capacity, the company

has ~10 MTPA capacity in the southern region, ~9 MTPA capacity in the

eastern region, ~6 MTPA capacity in the northern region, ~4.5 MTPA

capacity in the central region and ~ 4 MTPA capacity in the western

region.

Higher government spending to drive growth

Over the long term, the demand environment looks healthy, owing to

increase in government focus on infrastructure and higher budgetary

allocation to roads and housing sector. The company has also indicated

7-8% YoY growth in volumes over next few years mainly led by higher

government spending.

Recovery in southern region to benefit company

ACC has a third of its total capacity in the southern region. With the

resolution of political problems in the region along with expectations of

an overall recovery in the demand environment, going forward, ACC

should benefit from its presence in the southern market.

To increase capacity to ~35 MT by CY18E

ACC’s capacity will be 35 MT by CY18E mainly led by commissioning of

Jamul clinker (2.8 MT) & grinding unit (1.1 MT) and Sindhri grinding unit

(1.4 MT). Further another expansion of 2.7 MT is expected in Kharagpur.

Higher free operating cash flow sufficient for expansion plans

The company has consistently been generating healthy operating cash

flows for many years. Higher operating cash flow has ensured that ACC

does not require debt for further expansion. At the end of CY13, ACC was

a totally debt-free company. Going by the present scenario, the company

will not need to raise debt for the planned expansion of 5 MT given strong

cash flows.

Exhibit 1: Healthy operating cash flow

1343

934

1987

936

1543 1617 1667

-300

200

700

1200

1700

2200

CY12 CY13 CY14 CY15 CY16 CY17E CY18E

| C

rore

Operating Cashflow


Regional presence

Central

14%

East

22%

West

13%

South

32%

North

19%


Old, inefficient plants lead to higher cost of production…

ACC has one of the oldest manufacturing plants in the industry, resulting

in higher operating costs for the company. As can be seen from the chart

below, its other costs per tonne, which includes maintenance costs of the

plants, as percentage of industry average, is much higher than ‘total costs

except other costs’, on a per tonne basis. For example, for CY08, if the

industry’s ‘average costs per tonne after deduction of other costs’ was

| 100, the same for ACC was | 90 while the industry’s ‘average other

costs per tonne’ was | 100 while that for ACC was | 139.9. Higher other

costs are the result of older machinery of the company.

Exhibit 2: Costs as percentage of industry average costs

106.6

111.0

139.9

136.3

124.6

115.9

129.8

126.7124.8

120.9

90.190.0

89.9

103.7

102.5 102.4103.7

109.8

80

90

100

110

120

130

140

150

CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

Total Costs except Other cost Other Costs


…but efforts on to improve efficiency, reduce cost

To improve efficiency and reduce overall cost, the company has adopted

a two-pronged approach. One is phasing out of old and inefficient plants.

The second approach is to reduce dependency on power purchase from

outside. Captive power plant capacity of the company has increased from

~237 MW in CY08 to ~384 MW till CY12. The company met ~69% of its

power requirement through captive sources in CY08 and the remaining

through the state grid. The contribution of captive source increased to

~74% in CY16. This helped reduce the overall cost per tonne for the

company. Further, with proposed synergies from the Holcim

restructuring, we expect efficiencies to improve, going ahead.

Exhibit 3: Fuel mix

44

18

5

5

1862

3012

3 3

0

20

40

60

80

100

120

CY15 CY16*

Linkage Coal E-Auction Coal Petcoke

Imported Coal Alternative Fuels

Source: Company, ICICIdirect.com Research, * domestic coal consumption is assumed

Exhibit 4: Purchased power share at 26.0% in CY16

30.424.7 25.1 28.2 25.6 23.5 24.5 24.0 26.0

69.675.3 74.9 71.8 74.4 76.5 75.5 76.0 74

0

20

40

60

80

100

CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16

(%

)

Purchased Own Generation



Expect revenue CAGR at ~14.0 % during CY16-18E

Going forward, we expect revenue CAGR of 14.0% in CY16-18E with

volume growth at 10.0% CAGR. Realisation growth is expected at 3.6%

CAGR in the same period. The company is well on track on the capacity

expansion front and will likely achieve its target of 35 MT by CY18E.

Exhibit 5: Expect revenue CAGR of 14.0% during CY16-18E

9594

11010 1090411480 11433

10768

12653

13986

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E

Sales (| crore)


Exhibit 6: Capacity addition plans

Existing Capacity (MT) 33

Planned capacity addition

Kharagpur 2.7

Total 2.7

Total Capacity by CY17E (MT) 35.7


Exhibit 7: Volume to grow at 10.0% CAGR during CY16-18E

24.1 23.924.2

23.6

23.0

25.4

27.8

20.0

22.0

24.0

26.0

28.0

30.0


MT

Sales Volumes


Exhibit 8: Realisation to grow 3.6% CAGR during CY16-18E

4566 4556

47424838

4682

49775026

3500

4000

4500

5000

5500


| /

tonne

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(%

)

Realisation (|/tonne) -LS Growth (%) -RS


Exhibit 9: Q3CY17 volume increases 17.6% YoY

5.616.00

6.366.12

5.075.45

6.60 6.74

5.96

0.0

6.0

Q3C

Y15

Q4C

Y15

Q1C

Y16

Q2C

Y16

Q3C

Y16

Q4C

Y16

Q1C

Y17

Q2C

Y17

Q3C

Y17

In M

T

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

(%

)

Sales volumes -LHS Growth (%) -RHS


Exhibit 10: Realisation during Q3CY17 up 7.0% YoY

4884

4744

45174628

4788 4834

4696

4915

5125

3500

4000

4500

5000

5500

Q3C

Y15

Q4C

Y15

Q1C

Y16

Q2C

Y16

Q3C

Y16

Q4C

Y16

Q1C

Y17

Q2C

Y17

Q3C

Y17

|

-10.0

0.0

10.0

20.0

30.0

(%

)

Realisation-LHS Growth (%) -RHS



Operating efficiency to drive margins

With operating leverage benefit and operational efficiency due to cost

optimisation the company is expected to report ~300 bps increase in

EBITDA margins over CY16-18E.

Exhibit 11: Expect EBITDA/tonne of | 748 in CY18E

825

572518 496

544

695748

0

200

400

600

800

1000


EBITDA/Tonne


Exhibit 12: Margins to improve led by operating leverage benefit

16.9

17.7

12.6

10.910.3

12.0

14.0

14.9

10

15

20

25

CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E

(%

)

EBITDA Margin (%)


Exhibit 13: Q3CY17 EBITDA/tonne at | 592/t

469

356

595678

460412

519

735

592

0

100

200

300

400

500

600

700

800

Q3C

Y15

Q4C

Y15

Q1C

Y16

Q2C

Y16

Q3C

Y16

Q4C

Y16

Q1C

Y17

Q2C

Y17

Q3C

Y17

| p

er t

onne


Exhibit 14: Margin trend (%)

7.5

11.0

14.9

11.6

9.6

13.2

14.7

9.6

8.5

0

2

4

6

8

10

12

14

16

Q3C

Y15

Q4C

Y15

Q1C

Y16

Q2C

Y16

Q3C

Y16

Q4C

Y16

Q1C

Y17

Q2C

Y17

Q3C

Y17

(%

)

EBITDA Margin


Expect net profit CAGR of 33.0% during CY16-18E

We expect net margins to improve to 9.5% in CY18E from 6.5% in CY16.

Overall, we expect net profit to grow at a CAGR of 33.0% during CY16-

18E.

Exhibit 15: Profitability trend

1094.61161.8

587.6

1132.8

1335.6

755.3

10.0 10.1

5.1

6.5

9.09.5

0

200

400

600

800

1000

1200

1400

1600

CY13 CY14 CY15 CY16 CY17E CY18E

| c

rore

0

4

8

12

(%

)

Net profit - LS Net profit margin -RS



Outlook and valuation

With a capacity expansion of 2.8 MT in Jamul (Chhattisgarh) and 1.4 MT

in Sindri (Jharkhand), we expect CY17 to witness an improvement in the

volume growth. We expect sales volume and realisation CAGR of 10.0%

and 3.6%, respectively, during CY16-18E.

Macro tailwinds coupled with capacity expansion of 5 MT is expected to

result in 10.0% CAGR in volumes over CY16-18E. Further, cost control

initiatives such as use of alternative fuels, better sales mix, reduction of

employees is expected to boost margins over next two years. In addition,

with implementation of Good and Service Tax (GST) there will be freight

cost rationalisation, which will further lead to margin expansion, going

forward. We expect OPM to improve from 12.0% to 14.9%in CY18E.

Hence, we maintain our BUY recommendation on the stock with a revised

target price of | 2,100/share (i.e. valuing the stock at CY18E EV/tonne of

$177/tonne, 18.0x CY18E EV/EBITDA).

Exhibit 16: Key assumptions

| per tonne CY13 CY14 CY15E CY16 CY17E CY18E

Sales Volume (mtpa) 23.9 24.2 23.6 23.0 25.4 27.8

Net Realisation 4556 4742 4838 4682 4977 5026

Total Expenditure 3984 4224 4342 4138 4282 4278

Stock Adjustment 3 -5 0 7 -51 0

Raw material 698 819 782 691 748 748

Power & Fuel 996 1010 1014 939 1042 1025

Employees 277 309 327 329 316 330

Freight 963 1065 1144 1148 1287 1225

Others 1048 1026 1074 1024 940 950

EBITDA per Tonne 572 518 496 544 695 748

Source: ICICIdirect.com Research


Exhibit 17: One year forward EV/EBITDA

2000

12000

22000

32000

42000

52000

62000

72000

82000

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

(|

crore)

EV 30.0x 25.0x 20.0x 15.0x 5.0x 10.0x


Exhibit 18: One year forward EV/tonne

1000

2000

3000

4000

5000

6000

7000

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

Oct-12

Apr-13

Oct-13

Apr-14

Oct-14

Apr-15

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Million $

EV $172 $151 $131 $111 $91 $70


Exhibit 19: Valuation

Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) ($) (x) (%) (%)

CY15 11432.8 2.7 31.3 3.3 44.8 176.3 27.7 7.0 6.0

CY16 10945.6 -4.3 38.1 22.0 44.6 173.0 24.2 8.3 8.0

CY17E 12652.8 15.6 60.3 58.1 29.7 150.6 17.9 12.0 12.0

CY18E 13985.6 10.5 71.1 17.9 25.2 149.2 15.0 12.9 13.4



Recommendation history vs Consensus estimate

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Oct-17Jul-17Apr-17Jan-17Oct-16Aug-16May-16Feb-16Nov-15

(|

)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with Hold

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Feb-12 The company looks to set up a new clinker production facility of 2.79 MTPA and allied grinding facility at Jamul. The existing clinkering and grinding lines at Jamul

will be phased outMay-12 CCI completes probe into alleged cartilsation by 39 cement companies and finds these companies, including ACC, guilty of cartelisation

Jun-12 CCI passes an order against several cement manufacturers including ACC and imposes a penalty of 0.5 times the profit for 2009-10 and 2010-11. For ACC, the

penalty works out to | 1147.59 crore

Oct-12 The company's wholly-owned subsidiary company, ACC Concrete Ltd amalgamated with the company

Nov-12 Files petition with COMPAT against CCI order that imposed penalty of | 1,147.6 crore on ACC

Dec-12 Holcim hikes royalty payment to 1% of sales with effect from January 1, 2013

Jul-13 Holcim Group to consolidate its holding in ACC through Ambuja Cements. The transaction will result in Ambuja holding 50% stake in ACC, in which Holcim India

currently holds 50.01%

Sep-13 To expand its capacity by nearly 4 MTPA in the eastern region in the next three years with an investment of over | 3000 crore

Oct-14 Suspension of limestone mining operations at Chaibasa and Bargarh

Feb-15 Resumption of limestone mining at Chaibasa Plant in Jharkhand

Jun-15 Resumption of limestone mining at Bargarh Plant in Odhisa

Jul-16 Commisions 2.79 MT clinker facility at Jamul

Aug-16 ACC becomes subsidiary of Ambuja

Oct-16 Commisions 1.4 MT grinding unit at Sindri, Jharkhand


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Holcim Group 30-Jun-17 54.5 102.4 0.0

2 JPMorgan Asset Management U.K. Limited 30-Jun-17 2.2 4.1 -0.2

3 J.P. Morgan Asset Management (Hong Kong) Ltd. 31-Aug-17 2.0 3.8 -0.3

4 Aberdeen Asset Management (Asia) Ltd. 31-Dec-16 2.0 3.7 0.3

5 Capital World Investors 30-Sep-17 1.6 3.0 0.0

6 Capital Research Global Investors 30-Jun-17 1.2 2.3 0.0

7 Reliance Nippon Life Asset Management Limited 30-Sep-17 1.0 1.9 0.3

8 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 0.9 1.7 0.0

9 The Vanguard Group, Inc. 31-Aug-17 0.9 1.6 0.0

10 Aditya Birla Sun Life AMC Limited 30-Sep-17 0.7 1.4 0.3

(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17

Promoter 50.34 54.53 54.53 54.53 54.53

FII 16.83 14.36 14.26 14.78 13.64

DII 18.39 16.65 16.68 16.23 16.97

Others 14.44 14.46 14.53 14.46 14.86

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Reliance Nippon Life Asset Management Limited 7.30 0.29 J.P. Morgan Asset Management (Hong Kong) Ltd. -8.73 -0.31

Aditya Birla Sun Life AMC Limited 6.40 0.25 BlackRock Institutional Trust Company, N.A. -4.77 -0.19

Axis Asset Management Company Limited 4.24 0.17 APG Asset Management -3.65 -0.16

Franklin Templeton Asset Management (India) Pvt. Ltd. 1.21 0.05 Lyxor Asset Management -4.05 -0.16

SBI Funds Management Pvt. Ltd. 0.82 0.03 JPMorgan Asset Management U.K. Limited -3.77 -0.16

Buys Sells

Source: Reuters, ICICIdirect.com Research


Financial summary

Profit and loss statement | Crore

(Year-end March) CY15 CY16 CY17E CY18E

Total operating Income 11,432.8 10,945.6 12,652.8 13,985.6

Growth (%) -0.4 -4.3 15.6 10.5

Raw material 1848.1 1606.8 1771.6 2081.3

Power & Fuel 2396.7 2159.5 2649.3 2852.1

Employees 772.2 756.2 804.6 918.2

Freight 2704.2 2640.0 3271.9 3408.6

Others 2538.6 2466.5 2389.2 2643.4

Total Operating Exp. 10,259.7 9,629.0 10,886.6 11,903.5

EBITDA 1,173.0 1,316.7 1,766.2 2,082.1

Growth (%) -6.5 12.2 34.1 17.9

Depreciation 662.6 615.1 629.9 679.6

Interest 64.6 79.7 89.2 75.0

Other Income 484.2 348.9 483.6 490.0

Exceptional items 164.5 38.6 0.0 0.0

PBT 765.5 932.2 1,530.6 1,817.4

Total Tax 190.0 226.3 404.6 490.7

PAT 587.6 716.7 1,132.8 1,335.6

Adjusted PAT 752.0 755.3 1,132.8 1,335.6

Growth (%) -35.3 0.4 50.0 17.9

EPS (|) 31.3 38.1 60.3 71.1


Cash flow statement | Crore


Profit after Tax 587.6 716.7 1,132.8 1,335.6

Add: Depreciation 662.6 615.1 629.9 679.6

(Inc)/dec in Current Assets -300.1 4.5 -902.9 -438.9

Inc/(dec) in CL and Prov. -14.3 207.1 756.8 90.3

CF from operating activities 935.8 1,543.5 1,616.5 1,666.7

(Inc)/dec in Investments 73.6 -371.4 50.0 0.0

(Inc)/dec in Fixed Assets -773.5 -664.5 -1,000.0 -1,000.0

Others -67.6 203.3 0.0 0.0

CF from investing activities -767.5 -832.6 -950.0 -1,000.0

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 0.0 -30.0 0.0 0.0

Dividend paid & dividend tax -376.6 -376.7 -373.7 -373.7

Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0

Others -7.5 -98.1 0.0 0.0

CF from financing activities -384.1 -504.7 -373.7 -373.7

Net Cash flow -215.8 206.1 292.8 292.9

Opening Cash 309.9 94.1 300.2 593.0

Closing Cash 94.1 300.2 593.0 886.0


Balance sheet | Crore


Liabilities

Equity Capital 187.9 188.0 188.0 188.0

Reserve and Surplus 8,233.2 8,475.2 9,234.3 10,196.1

Total Shareholders funds 8,421.2 8,663.2 9,422.3 10,384.1

Total Debt 100.0 70.0 70.0 70.0

Other Liabilities 373.1 562.2 562.2 562.2

Total Liabilities 8,894.2 9,295.4 10,054.4 11,016.3

Assets

Gross Block 11,782.3 13,935.6 14,696.6 16,196.6

Less: Acc Depreciation 5,820.8 6,435.9 7,065.8 7,745.4

Net Block 5,961.5 7,499.7 7,630.8 8,451.2

Capital WIP 1,749.8 261.0 500.0 0.0

Total Fixed Assets 7,711.4 7,760.7 8,130.8 8,451.2

Investments+Goodwill 1,329.7 1,687.0 1,637.0 1,637.0

Inventory 1,189.4 1,224.6 1,569.4 1,518.9

Debtors 484.4 466.4 636.0 582.5

Loans and Advances 1,935.9 1,908.4 2,267.0 2,823.8

Other Current Assets 55.1 61.0 90.9 77.0

Cash 94.1 300.2 593.0 886.0

Total Current Assets 3,758.9 3,960.6 5,156.3 5,888.1

Creditors 3,146.6 3,374.1 4,162.1 4,168.0

Provisions 759.2 738.7 707.6 791.9

Total Current Liabilities 3,905.8 4,112.9 4,869.6 4,959.9

Net Current Assets -146.8 -152.3 286.7 928.2

Application of Funds 8,894.2 9,295.4 10,054.4 11,016.3


Key ratios


Per share data (|)

EPS 40.0 40.2 60.3 71.1

Cash EPS 66.5 70.9 93.8 107.3

BV 448.1 461.0 501.5 552.6

DPS 17.0 17.0 17.0 17.0

Cash Per Share 5.0 16.0 31.6 47.2

Operating Ratios (%)

EBITDA Margin 10.3 12.0 14.0 14.9

PAT Margin 5.1 6.5 9.0 9.5

Inventory days 39.0 40.3 40.3 40.3

Debtor days 14.3 15.9 15.9 15.9

Creditor days 96.0 108.7 108.7 108.7

Return Ratios (%)

RoE 8.9 8.7 12.0 12.9

RoCE 11.2 11.3 16.1 17.2

RoIC 8.8 9.8 15.3 16.3

Valuation Ratios (x)

P/E 57.3 47.0 29.7 25.2

EV / EBITDA 27.7 24.2 17.9 15.0

EV / Net Sales 2.8 2.9 2.5 2.2

Market Cap / Sales 2.9 3.1 2.7 2.4

Price to Book Value 4.0 3.9 3.6 3.2

Solvency Ratios

Debt/EBITDA 0.1 0.1 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 1.0 1.0 1.1 1.2

Quick Ratio 0.9 0.9 0.9 1.0



ICICIdirect.com coverage universe (Cement)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

ACC* 1,793 2100 Buy 33,698 40.2 60.3 71.1 24.2 17.9 15.0 173 151 149 11.3 16.1 17.2 8.7 12.0 12.9

Ambuja Cement* 281 305 Buy 55,797 4.9 5.2 6.9 24.0 21.9 16.1 197 184 184 3.8 5.0 8.1 5.1 5.3 6.8

UltraTech Cem 4,041 4750 Buy 110,885 96.3 88.1 125.8 22.1 22.2 15.8 255 225 217 12.4 8.7 12.2 11.1 9.6 12.4

Shree Cement 18,580 19700 Hold 64,658 384.8 442.6 576.3 26.3 23.0 17.1 377 363 290 12.3 14.1 16.9 17.4 16.9 18.4

Heidelberg Cem 119 140 Hold 2,697 3.4 3.8 6.0 14.2 13.3 10.1 109 105 102 8.2 8.5 12.7 7.9 8.5 13.2

India Cement 180 232 Buy 5,530 5.4 7.8 10.1 9.8 8.6 8.1 91 88 85 7.5 8.3 8.7 3.3 4.5 5.6

JK Cement 949 1265 Buy 6,636 37.1 44.7 53.3 13.7 11.8 10.1 122 113 111 12.6 13.9 15.7 14.5 14.4 15.1

JK Lakshmi Cem 393 495 Hold 4,626 7.0 9.6 20.0 17.0 13.2 9.3 89 80 73 7.5 9.5 14.1 5.9 7.7 13.8

Mangalam Cem 358 425 Buy 956 12.9 11.7 38.2 11.6 10.6 5.5 55 52 50 10.2 10.3 20.0 6.8 5.9 16.3

Star Cement 107 135 Hold 5,393 4.1 6.2 5.7 14.8 11.1 11.1 216 210 196 13.8 18.3 16.8 14.0 18.1 14.8

Ramco Cement690 822 Buy 16,427 27.3 25.9 30.1 15.1 15.2 13.2 179.0 181.2 168.7 12.7 11.2 12.0 17.4 15.2 15.6

Company

EV/Tonne ($)EV/EBITDA (x)EPS (|) RoCE (%) RoE (%)

Source: Company, ICICIdirect.com Research *December year ending


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Documents

ACC (ACC) | 1,793content.icicidirect.com/mailimages/IDirect_ACC_Q3CY17.pdf · Ramco Cement -8.3 -3.3 2.0 4.1 ACC (ACC) | 1,793 Research Analyst Rashesh Shah ... by better operating