Institutional Equity Research ACC - Business Standard

BUYTarget Price: Rs1,700

ACCCMP* (Rs) 1,424

Upside/ (Downside) (%) 19

Bloomberg Ticker ACC IN

Market Cap. (Rs bn) 268

Free Float (%) 46

Shares O/S (mn) 188

Cement | India

Institutional Equity Research

Company Update | February 28, 2018

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In a Sweet Spot Despite Challenges

Share price (%) 1 mth 3 mth 12 mth

Absolute performance 3.3 (1.7) (13.0)

Relative to Nifty 2.6 (3.1) (14.1)

Shareholding Pattern (%) Sept'18 Dec'18

Promoter 54.5 54.5

Public 45.5 45.5

1 Year Stock Price Performance

Note: * CMP as on February 27, 2019

Research Analyst: Binod Modi

Contact: 022 3303 4626

Email: [email protected]

Key Financials (Rs mn) CY17 CY18E CY19E CY20ESales 129,310 144,775 158,258 170,346EBITDA 15,555 17,236 21,443 24,397APAT 9,155 10,222 12,559 14,569EPS (Rs) 48.7 54.4 66.8 77.5DPS (Rs) 1.7 1.4 1.4 1.4 P/E (x) 29.2 26.2 21.3 18.4P/B (x) 2.9 2.5 2.3 2.1EV/EBITDA (x) 15.5 13.8 11.2 9.8RoE (%) 10.1 15.3 11.4 12.1Div. Yield (%) 1.2 1.0 1.0 1.0 Source: Company, RSec Research

ACC is expected to witness a decent recovery in its operational performance in the backdrop of recent realisation recovery in its key markets and likely spill-over impact of reduction in fuel prices from ongoing quarter. We note that ACC, after inducting new CEO in Feb’17, has marked a tremendous improvement in its operational efficiencies. Resultantly, its operating cost/tonne has declined by ~Rs129/tonne to Rs4,120 in last two years despite sharp upsurge in fuel prices during the period. We recent interacted with the ACC to understand the current status of business and way forward. Below are the key takeaways:-

New Capacity to Come on Stream in 2021: ACC’s capacity expansion (3mnT clinker and 5.9mnT cement) with an aggregate capex of Rs30bn – funding through internal accrual – commence ground breaking work in the current year. All these units (barring 2.2mnT SGU in Uttar Pradesh, as land is yet to be finalised) will be commissioned towards the mid-2021. Notably, all units in UP and Jharkhand enjoys fiscal incentives, as per states policy of the respective state governments.

Incentive Declines to ~Rs1.3bn in CY18: As ACC enjoys sales tax benefits up to on investment in 2 of its plants i.e. Chanda and Sindri SGU, its incentive value has declined to Rs1.3bn in CY18 from Rs1.5bn inCY17 mainly due to implementation of GST. Hereon, ACC expects quarterly run-rate of fiscal incentive in the range of Rs300-400mn, which can improve further in two circumstances: (a) Significant growth in Maharashtra volume; and (b) commissioning of new planned capacities in Uttar Pradesh and Jharkhand. It has already exhausted up to Rs8bn and Rs5bn sales tax fiscal incentives for Chanda and Sindri SGU, respectively till date.

Expects Volume Growth in Tandem with Industry Growth: While ACC expects its volume to improve in tandem with the industry’s growth, we believe clinker constraints can impact its volume growth in the medium-term, as clinker capacity is already being utilised at >90% level. We note that average cement to clinker ratio of ACC has been in the range of 1.5-1.55x during 2012-2017. Hence, ACC potentially can sell up to 31.5mnT cement in case the product-mix does not change significantly. We expect ACC’s sales volume to clock 5% CAGR over CY18-CY20E.

Recent Price Hike & Cost Reduction to Result in Strong Recovery in Unitary EBITDA: ACC expects the spill-over favourable impact of reduction in fuel prices and recent up-tick in realisation should result in incremental EBITDA/tonne by ~Rs200-300/tonne in the subsequent quarters. Further, rationalisation of manpower may also result in saving to the tune of Rs30-40/tonne. However, landed cost of slag is still prevailing higher at Rs1800/tonne due to logistics bottlenecks and supply crunch. We expect EBITDA/tonne at Rs664 and Rs726 in CY19E and CY20E, respectively as against Rs565 in CY18.

Outlook & ValuationWe continue to maintain our positive view on ACC owing to its deep penetration in the rural markets (~80% trade segment volume) and consistent focus on premium products. Looking ahead, we expect its operating performance to improve led by recent up-tick in realisation in select markets. As the current valuations at 11.2x and 9.8x EBITDA of CY19E and CY20E appear to be attractive, we maintain our BUY recommendation on the stock with an unrevised Target Price of Rs1,700 (12x CY20 EBITDA).

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ACCCMP* (Rs) 1,424


Bloomberg Ticker ACC INCement | India


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Healthy Traction in RMC Business: Double-digit growth in RMC volume is underpinned by strong infrastructure development activities across the country. It expects RMC volume should continue to grow in double-digit with ~10% of operating margin. In addition to this, it has recently forayed into adhesive business with products called ‘ACC Leakblock- Waterproofing Technology’. The Company procures it from the third party and uses own branding. This business contributes very negligible revenue of ~Rs20mn/annum as on date with higher margin.

Trade, Fuel and Freight Mix: Trade accounts for 80% of total sales. Petcoke, Coal and AFR account for 65%, 30% and 5%, respectively. Road and rail mix comes at 60:40.

Risks to the View f Government’s failure to revive infrastructure projects.

f Significant surge in operating cost and dip in realizations.


ACCCMP* (Rs) 1,424




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Profit & LossY/E Dec (Rs mn) CY17 CY18 CY19E CY20E

Net Sales 129,310 144,775 158,258 170,346

% yoy growth 20.1 12.0 9.3 7.6

Total Cost 113,755 127,539 136,815 145,950

EBITDA 15,555 17,236 21,443 24,397

EBIDTA Margin (%) 12.0 11.9 13.5 14.3

Depreciation and Amortisation 6,401 5,996 6,181 6,217

Interest 1,023 892 1,057 1,123

Other Income 4,853 4,758 4,824 5,017

PBT 12,984 15,105 19,029 22,074

Tax 3,829 (123) 6,470 7,505

% Tax 29.5 (0.8) 34.0 34.0

Net Profit 9,155 15,228 12,559 14,569

YoY Growth (%) 41.5 66.3 (17.5) 16.0

Net Profit Margin (%) 7.1 10.5 7.9 8.6

Adjusted Profit 9,155 10,222 12,559 14,569

Balance SheetY/E Dec (Rs mn) CY17 CY18E CY19E CY20E

Share Capital 1,880 1,880 1,880 1,880

Reserves & Surplus 91,775 103,833 113,223 124,622

Total Shareholder's funds 93,655 105,713 115,103 126,502

Unsecured Loans 592 - - -

Total Debt 592 - - -

Deferred Tax Liability 5,414 6,631 6,631 6,631

TOTAL LIABILITIES 99,660 112,344 121,733 133,132

Gross Block 84,799 88,899 92,899 98,399

Less: Accumulated Depreciation 12,389 18,386 24,567 30,784

Net Block 72,410 70,514 68,333 67,615

CWIP 2,617 3,922 13,922 23,922

Investments 2,302 2,302 6,302 6,802

Other Non Current Assets 13,354 14,951 16,343 17,591

Inventories 14,040 16,786 16,476 17,735

Sundry Debtors 6,682 8,683 9,491 10,216

Cash & Bank 26,954 30,154 27,634 27,982

Other Current Assets 7,874 11,899 13,008 14,001

Loans & Advances 2,657 2,857 3,357 3,857

Total Current Assets 58,206 70,378 69,966 73,791

Current Liablities 47,296 47,555 50,808 54,109

Provisions 1,932 2,166 2,324 2,479

Net Current Assets 8,978 20,657 16,835 17,203

Total Assets 99,660 112,344 121,734 133,132


ACCCMP* (Rs) 1,424




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Key RatioY/E Dec CY17 CY18E CY19E CY20E

Valuation Ratio (x)P/E 29.2 26.2 21.3 18.4

P/CEPS 17.2 12.6 14.3 12.9

P/BV 2.9 2.5 2.3 2.1

EV/EBITDA 15.5 13.8 11.2 9.8

EV/Sales 1.9 1.6 1.5 1.4

EV/tonne (USD) 105 103 104 104

Dividend Payout (%) 34.9 17.3 21.0 18.1

Dividend Yield (%) 1.2 1.0 1.0 1.0

OCF Yield (%) 5.8 5.5 7.9 8.2

Per Share Data (Rs) EPS (Basic) 48.7 54.4 66.8 77.5

EPS (Diluted) 48.7 54.4 66.8 77.5

CEPS 82.7 112.9 99.7 110.6

DPS 1.7 1.4 1.4 1.4

Book Value 498 562 612 673

EBITDA/tonne 550 565 664 726

Returns (%) RoCE 14.5 15.1 17.2 18.2

RoE 10.1 15.3 11.4 12.1

Turnover ratios (x) Asset Turnover (Gross block) 1.5 1.6 1.7 1.7

Inventory (days) 39.6 42.3 38.0 38.0

Receivables (days) 18.9 21.9 21.9 21.9

Payables (days) 88.5 82.0 82.0 82.0

WCC (days) (30.0) (17.8) (22.1) (22.1)

Cash Flow StatementY/E Dec (Rs mn) CY17 CY18E CY19E CY20E

PBT 12,984 15,105 19,029 22,074

Depreciation 6,401 5,996 6,181 6,217

Interest Paid 1,023 892 1,057 1,123

Others (1,794) - - -

Operating Cash flow before WC changes 18,614 21,993 26,267 29,414

Change in Working Capital (890) (8,480) 1,303 (20)

Cash Generated from Operation 17,724 13,514 27,570 29,393

Direct Tax (net) (2,177) 1,341 (6,470) (7,505)

Net Cash from Operating Activities 15,548 14,855 21,100 21,888

Purchase / Sale of Fixed Assets (net) (5,194) (5,404) (14,000) (15,500)

Purchase of Investment (22) - (4,000) (500)

Others 983 (1,597) (1,392) (1,248)

Net Cash in Investment activities (4,233) (7,001) (19,392) (17,248)

Proceeds/ Repayment of LT Borrowings (net) - (592) - -

Interest Paid (420) (892) (1,057) (1,123)

Others (3,792) (3,170) (3,170) (3,170)

Net cash in Financing activities (4,212) (4,653) (4,227) (4,292)

Net inc. / (dec.) in cash & cash equivalents 7,103 3,200 (2,519) 348


ACCCMP* (Rs) 1,424




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Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India’s leading retail broking houses. Reliance Capital is amongst India’s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014

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RSL CIN: U65990MH2005PLC154052. SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE 231234833; BSE - INB / INF / INE 011234839, Depository Participants: CDSL IN-DP-257-2016 IN-DP-NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN No.29889.

Rating GuidesRating Expected absolute returns (%) over 12 monthsBUY >10%

HOLD -5% to 10%

REDUCE >-5%

Date Reco CMP TP

06-Feb-19 BUY 1540 1820

17-Oct-18 BUY 1540 1820

23-Jul-18 BUY 1311 1725

19-Apr-18 BUY 1571 1920

09-Feb-18 BUY 1693 1900

17-Oct-17 BUY 1792 2000

18-Jul-17 HOLD 1747 1640

21-Apr-17 HOLD 1495 1520

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Institutional Equity Research ACC - Business Standard