ACC Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/07/ACC_190717.pdf · Cement SHARE PRICE PERFORMANCE Shares outs ... We value ACC Ltd at an EV/EBITDA of

ACC Ltd.

RESULT UPDATE 18th July, 2017

2 Page

Result Highlights

•Total Sales stood at INR 39586 Mn as against our estimate of INR 37970 which was up by 20.5% Y-O-Y and 9.0% Q-O-Q. Volume growth stood at 10.1% Y-O-Y reaching 6.74 MT (est. 6.6 MT) as against 6.12 MT in Q2CY16.

•EBIDTA stood at INR 6355 Mn which was up by 37.8% Y-O-Y and up 52.7% Q-O-Q and EBIDTA margin stood at 16.1% as against 14% same quarter last year. Lower COGS and other expenses resulted in better than expected EBITDA margins (margins of 16.1% as against our estimate of 12%). Adj.PAT stood at INR 3218 Mn which was up by 32.7% Y-O-Y and up 52.2% Q-O-Q while PAT Margin stood at 8.1%. Volume outperformance and improvement in the operating efficiencies has led to a significant hike in PAT.

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

ANALYST Vaibhav Chowdhry, [email protected], 91-22-6696 5571 Kunal Shah, [email protected], 91-22-6696 5568

KRChoksey Research is also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

ACC Ltd. Outperformance on margin front !

CMP

INR 1751 Target

INR 2075 Potential Upside

18.5% Market Cap (INR Mn)

328862

Recommendation

BUY Sector

Cement

SHARE PRICE PERFORMANCE

Shares outs (Mn) 188

EquityCap (INR Mn) 1878

Mkt Cap (INR Mn) 328862

52 Wk H/L (INR) 1779/1257

Volume Avg (3m K) 448.5

Face Value (INR) 10

Bloomberg Code ACC IN

MARKET DATA

SENSEX 32075

NIFTY 9916

MARKET INFO

Volumes in line with estimates:

Cement sales volume for the quarter stood at 6.74 MT as against our estimate of 6.6 MT and was up by 10.1% Y-O-Y. Volume growth for the company outperformed as compared to the industry growth rate (est. of 3% Y-O-Y growth during April-June 2017) primarily on account of capex at Sindri and Jamul. Top-line for the company grew by 20.5% Y-O-Y and 9% Q-O-Q and stood at INR 39586 mn as against our estimate of INR 37970 mn.

Going ahead, we believe that East and South India will outperform on the demand front on account of off-take in Government projects related to affordable housing and higher infrastructure spend. Consequently, we expect the company to continue its outperformance on the volume front as compared to industry growth rate on account of high exposure to East and South(~58%).

We expect the volumes to grow from 23 MT in CY16 to 29.05 MT by CY18E translating into 12.41% CAGR. Likewise, we estimate its top-line to surge from INR 126877.2 mn in CY16 to INR 170855.1 mn in CY18E; a CAGR of 16.04%.

Outperformance on operating efficiency; ahead of estimates: EBITDA margins for Q2CY17 stood at 16.1% as compared to 11.46% during Q1CY17 and 14.03% during Q2CY16. The operating margins were ahead of our estimates(est. of 12%) primarily on account of lower raw material costs and other expenses coupled with lower than anticipated power and fuel costs. EBITDA stood at INR 6355 mn which was up by 37.8% Y-O-Y and 52.7% Q-O-Q; while EBITDA/ton stood at INR 668 as against INR 467 during Q1CY17 and INR 612 during Q2CY16. We expect enhancement in operating efficiencies on account of expectation of stable cement prices and higher operating leverage. We expect EBITDA/ton to increase from INR 465 in CY16 to INR 765 in CY18 and EBITDA to increase from INR 14110 mn to INR 27026.4 mn over the same period; a robust growth of 38.4%. Healthy free cash flow generation to continue: The company possesses one of the healthiest balance sheet among cement players with cash and cash equivalents of INR 17881 mn currently. We expect the sturdy free cash flow generation to continue on account of minimal capex plan and improvement in operating performance and estimate FCFF to increase from INR 8612.4 mn in CY16 to INR 15492.5 mn in CY18. Additionally, we expect cash and cash equivalents to increase from INR 18438.5 mn in CY16 to INR 39749.8 mn by CY18. Likewise, we expect enhancement in return ratios with ROE increasing from 6.89% in CY16 to 13.51% by CY18E and ROCE increasing from 9.77% to 19.34% over the same period.

Particulars Jun 17 Mar 17 Dec 16

Promoters 54.53 54.53 54.53

FIIs 14.78 14.26 14.37

DIIs 16.23 16.68 16.65

Others 14.46 14.52 14.46

Total 100 100 100

SHARE HOLDING PATTERN (%)

Volume CAGR between CY 16 and CY 18E

12.4%

Revenue CAGR between CY 16 and CY 18E

16%

India Equity Institutional Research II Result Update - Q2CY17 II 18th July, 2017

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Sensex ACC Ltd

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Valuation and Outlook: The company has been delivering exceptional performance over H1CY17 with a volume growth of 7% Y-O-Y and EBITDA growth of 16.3% Y-O-Y. With net cash and cash equivalents of INR 38249.8 mn on CY18E, the company trades at an EV/ton of $130; which is at a 30% discount to other large cap cement players primarily on account of lagging efficiencies. We have increased our volume estimates by 3.5%, EBITDA margins by 350 bps and PAT margins by 252 bps after the sustained outperformance by the company. We believe efficient deployment of capital in improving efficiency or further capacity addition should act as re-rating trigger for the company. We value ACC Ltd at an EV/EBITDA of 13x CY18E and arrive at a target price of INR 2075 which is an upside of 18.5% from CMP of INR 1751 and valuations are subject to re-rating depending upon volume growth sustainability and improvement in operating efficiencies. We upgrade our rating from HOLD to BUY.

Particulars (in INR) CY14 CY15 CY16 CY17E CY18E

Realization/ton 4359.94 4403.99 4275.39 4446.41 4624.26

COGS cost/ton 748.71 711.91 662.40 639.05 633.60

Employee cost/ton 283.55 296.56 304.27 292.96 298.61

Power and fuel cost/ton 927.39 922.21 843.28 907.97 967.55

Transportation and Handling cost/ton 986.83 1048.92 1037.79 1052.74 1066.23

Other Expenses/ton 945.88 976.09 962.79 898.68 892.97

EBITDA/ton 467.57 448.30 464.86 655.01 765.29

Particulars (INR Mn) CY14 CY15 CY16 CY17E CY18E

Revenues 131081.80 132407.10 126877.20 152501.03 170855.08

EBITDA 14896.00 15278.50 14110.40 21951.51 27026.41

PAT 11506.30 5822.50 5964.40 10675.52 14033.90

EPS 61.27 31.00 31.76 56.85 74.73

P/E (x) 22.84 43.85 41.83 30.81 23.44

EV/EBITDA (x) 16.58 15.89 16.41 13.72 10.75

Source: Company, KRChoksey Research


Key Financials

Operating metrics






ACC Ltd.

Q2CY17 Result Snapshot Comments:

• Total Sales stood at INR 39586 Mn as against our estimate of INR 37970 which was up by 20.5% Y-O-Y and 9.0% Q-O-Q. Volume

growth stood at 10.1% Y-O-Y reaching 6.74 MT (est. 6.6 MT) as against 6.12 MT in Q2CY16.

• EBIDTA stood at INR 6355 Mn which was up by 37.8% Y-O-Y and up 52.7% Q-O-Q and EBIDTA margin stood at 16.1% as against 14%

same quarter last year. Lower COGS and other expenses resulted in better than expected EBITDA margins (margins of 16.1% as

against our estimate of 12%).

• Adj.PAT stood at INR 3218 Mn which was up by 32.7% Y-O-Y and up 52.2% Q-O-Q. PAT Margin stood at 8.1%. Volume

outperformance and improvement in the operating efficiencies has led to a significant hike in PAT.

• We believe that ACC Ltd has outperformed on the volume front as against the industry volume growth on account of capex at

Jamul and Sindri coupled with launch of new brands. The result was exceptional on the operating efficiency front with

significant reduction in COGS and other expenses coupled with lower than anticipated power and fuel costs.

• Going forward, we believe with the Government’s enhanced focus on rural and affordable housing coupled with infrastructure

development, we expect a sharp recovery in cement volumes from Q4CY17 onwards and we believe that the company is poised

for re-rating if it can sustain similar volume growth and operating efficiencies.

Particulars (Mn) Q2CY17 Q1CY17 Q2CY16 Q-O-Q Y-O-Y

Total Sales 39586 36311 32861 9.0% 20.5%

Total Expenditure 33231 32149 28251 3.4% 17.6%

Cost of Raw Materials 4018 4649 4752 -13.6% -15.4%

Employee Cost 2182 1952 1859 11.8% 17.4%

Power and Fuel Costs 6847 6477 5222 5.7% 31.1%

Transportation costs 8753 8304 6539 5.4% 33.9%

Other expenses 6374 6197 5817 2.9% 9.6%

Excise duty paid on sales 5057 4570 4061 10.7% 24.5%

PBIDT (Excl OI) 6355 4162 4610 52.7% 37.8%

EBITDA Margins (%) 16.1% 11.5% 14.0% 459bps 202bps

Depreciation 1621 1650 1410 -1.8% 15.0%

EBIT & Exceptional Item 4733 2511 3200 88.5% 47.9%

Exceptional Items 0 0 0 - -

Other Income 260 357 256 -27.3% 1.3%

EBIT 4993 2869 3457 74.1% 44.5%

Interest 225 252 208 -10.7% 8.2%

EBT 4768 2617 3249 82.2% 46.8%

Tax 1550 502 824 208.8% 88.1%

PAT 3218 2115 2424 52.2% 32.7%

PAT Margin (%) 8.1% 5.8% 7.38% 230bps 75bps

EPS 17.12 11.25 12.90 52.2% 32.7%

4 Page







ACC Ltd. Financials

Balance Sheet (INR Mn) CY14 CY15 CY16 CY17E CY18E

Equity Share Capital 1879.50 1879.50 1879.90 1879.90 1879.90

Reserves 80476.60 82550.90 84734.50 92207.36 102031.09

Net worth 82356.10 84430.40 86614.40 94087.26 103910.99

Total loans 0.00 355.00 500.20 1000.00 1500.00

Capital Employed 88871 90676 94013 101997 112414

Net block 75130.20 76559.40 77232.00 73355.90 71875.61

Current Investments 12820.80 12011.50 15682.70 15682.70 15682.70

Inventories 12555.90 11886.00 12237.50 13518.22 14464.50

Sundry debtors 4107.10 4843.50 4677.30 5431.54 6085.25

Sundry creditors 7502.30 8741.10 12569.30 12998.29 13908.17

Cash and bank 3043.00 916.00 2755.80 13084.78 24067.10

Total Current assets 36511.40 33706.50 40325.00 53656.29 66026.69

Total Current liabilities 37842.10 38087.60 40862.10 42832.80 43806.19

Capital Deployed 88871 90676 94013 101997 112414

5 Page

Profit & Loss (INR Mn) CY14 CY15 CY16 CY17E CY18E

Total Sales 131081.80 132407.10 126877.2 152501.03 170855.08

COGS 19713.60 18481.20 16944.2 18977.50 20305.93

Employee Expenses 7465.90 7698.70 7783.1 8700.00 9570.00

Power and fuel 24418.20 23940.50 21571 26963.75 31008.31

Transportation cost 25983.30 27230.00 26546.6 31262.71 34171.02

Other Expenses 24905.10 25339.40 24628.1 26687.68 28618.23

Excise duty 13699.70 14438.80 15293.8 17957.87 20155.19

EBITDA 14896.00 15278.50 14110.4 21951.51 27026.41

D&A 5575.80 6520.60 6051.6 6267.90 6480.29

Other income 2682.80 1193.50 1127.1 1000.00 1200.00

EBIT 12003.00 9951.40 9185.9 16683.61 21746.12

Interest Expense 827.60 673.20 728.7 750.00 800.00

PBT 11175.40 9278.20 8457.2 15933.61 20946.12

Tax -330.90 1924.00 2064.7 5258.09 6912.22

Effective tax rate -2.96% 20.74% 24.41% 33.00% 33.00%

PAT 11506.30 5822.50 5964.4 10675.52 14033.90

Cash Flow (INR Mn) CY14 CY15 CY16 CY17E CY18E

PAT 11506.30 5822.50 5964.40 10675.52 14033.90

Depreciation & Amortization 5575.80 6520.60 6051.60 6267.90 6480.29

(Incr)/Decr in Working Capital 417.20 579.40 2087.50 -1519.78 -821.71

Cash Flow from Operating 13317.00 14612.40 13801.20 16173.64 20492.48

(Incr)/ Decr in Gross PP&E -15270.00 -11681.40 -5188.80 -2391.80 -5000.00

Cash Flow from Investing -14366.90 -9481.70 -5391.00 -2391.80 -5000.00

(Decr)/Incr in Debt -350.30 0.00 0.00 499.80 500.00

Dividend -6445.10 -5616.70 -3203.20 -3202.66 -4210.17

Finance costs -490.70 -414.90 -478.00 -750.00 -800.00

Cash Flow from Financing -8370.90 -6810.20 -4211.70 -3452.86 -4510.17

Incr/(Decr) in Balance Sheet Cash -9420.80 -1679.50 4198.50 10328.98 10982.31

Cash and cash equivalents at the Start of the Year 24990.60 15569.80 13890.30 2755.80 13084.78

Cash and cash equivalents at the End of the Year 15569.80 13890.30 18088.80 13084.78 24067.10









ACC Ltd. Ratio Analysis CY14 CY15 CY16 CY17E CY18E

Particulars

EBITDA/ton 467.57 448.30 464.86 655.01 765.29

Volume (mn tons) 24.21 23.62 22.99 26.90 29.05

Growth (%)

Total Sales 4.94% 1.01% -4.18% 20.20% 12.04%

EBITDA -8.55% 2.57% -7.65% 55.57% 23.12%

PAT 5.01% -49.40% 2.44% 78.99% 31.46%

Profitability (%)

EBITDA Margin 11.36% 11.54% 11.12% 14.39% 15.82%

NPM 8.78% 4.40% 4.70% 7.00% 8.21%

Return ratios

ROE 13.97% 6.90% 6.89% 11.35% 13.51%

ROCE 13.51% 10.97% 9.77% 16.36% 19.34%

Per share data

EPS 61.27 31.00 31.76 56.85 74.73

BPS 438.53 449.58 461.21 501.00 553.31

Valuations (x)

P/E (x) 22.84 43.85 41.83 30.81 23.44

P/BV (x) 3.19 3.02 2.88 3.50 3.17

EV/EBITDA (x) 16.58 15.89 16.41 13.72 10.75

EV/Ton ($) 119.05 117.03 103.43 134.52 129.84

Net Debt/EBITDA -1.06 -0.82 -1.27 -1.26 -1.42

Net Debt/Equity -0.19 -0.15 -0.21 -0.30 -0.37

Interest Coverage 14.50 14.78 12.61 22.24 27.18

6 Page







ACC Ltd.

Analyst Certification

We, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), senior research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & Conditions and other disclosures:

KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vide SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014.

We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.

KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers.

The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services.

KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months

KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report.

It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), senior research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions.

KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst.

Since associates (Group Companies) of KRCSSPL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), senior research associate, do not serve as an officer, director or employee of the companies mentioned in the report.

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Please send your feedback to [email protected] Visit us at www.krchoksey.com

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office:

1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.

Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053.

Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

7

7 Page India Equity Institutional Research II Result Update - Q2CY17 II 18th July, 2017

ACC Ltd. Rating Legend

Date CMP (INR) TP (INR) Recommendation Our Rating Upside

18-July-17 1751 2075 BUY Buy More than 15%

24-Apr-17 1495 1542 HOLD Accumulate 5% – 15%

Hold 0 – 5%

Reduce -5% – 0

Sell Less than – 5%

mailto:[email protected]

http://www.krchoksey.com/

Documents

ACC Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/07/ACC_190717.pdf · Cement SHARE PRICE PERFORMANCE Shares outs ... We value ACC Ltd at an EV/EBITDA of