ACC Ltdd Result update

u Jaypee Reseearch Desk

  Occt 22 ’10
eequityresearch@jaaypeeindia.com
research@jayppeeusa.com

 
     
Hold: Targe
et `958   Q3C
CY10 Result Update ACC LTD. 
 

As on Oct 22’10  AC
CC LTD (ACC) Reported A LLackluster Peerformance In
n Q3CY10 – 
Marke
et Price   `982 
Marke
et Cap. (` Cr.)  18,447  (1) Net salles declined b
by 15% YoY annd 20% QoQ to `17,591mmn 
52 We
eek High/Low   `
`1049/686  (2) Volumee down by 3.6 6% YoY to 4.8
8mt due to flo
ood and mon
nsoon 
Face V
Value   `10  (3) Realiza
ations down b by 12% YoY aand 11% QoQ  to `3642/ton
nne 
Book V
Value per Share  `339 
(4) Net pro
ofit declined b
by 79% YoY aand 75% QoQ Q to `865mn.  
   Targett Price 
 
`958 
Th
he  performannce  was  sign nificantly  below  our  estiimate  primarily  due  to
Codes 
500410  sharp surge in iinput costs th
han our expeectation.  
BSE Co
ode 
ISIN No  INE01
12A01025  We  believe  thhat  current  quarter  ressults  are  no
ot  indicative
e  of  future
NSE Syymbol  ACC 
peerformance; hhowever, we e are revisingg our earninggs estimates ddownwards
Bloom
mberg Code  ACC IN 
byy 20% for CY1
11E, to factor the Q3CY10 result. 
Reuters Code  ACC.BO 
Th
he  volume  grrowth  and  pricing  actions  would  be  under  scann ner  for  next
 

Reco
o Date  Reco Price  Taarget  couple  of  quarrters.  Conseq
quently,  we  aare  downgrading  ACC  fro
om  ‘BUY’  to
June 04
4, 2010  842  981 
‘HO
OLD’ with revvised price taarget of `958
8 (earlier `9811). 
July 22, 2010  816  981 
Oct 22, 2010  982  958   
 
                 Lackluster  op
perational  performance
p e  dented  profitability:  ACC’s  Net
25000 1200 QoQ  to  `17,5
sales  declined  by  15%  YoYY  and  20%  Q 591mn  as  co
ompared  to
20000 1000 `2
20,773mn  in  Q3CY09.    Total 
T cost  peer  tonne  inccreased  by  1
16%  YoY  to
800
15000 `3
3300/tonne on account of  increase in rraw material  cost and emp ployee cost.
600
10000 eclining  Top‐line  coupled  with surging 
De w costs  dentedd operating  profit 
p of the
Sensex 400
5000 ACC company  to  `1 1651mn  againnst  `6541mn n  in  correspo
onding  quarteer  last  year.
200
0 0 Neet profit of th
he company sstood at `865 5mn recordin ng de‐growth  of 79% YoY
Oct‐09 Jan‐10 Ap
pr‐10 Jul‐10 Oct‐1
10 and 75% QoQ. 
 
(`` in.mn) Q3CY10A Q3CY10E
Q De
eviation Consensus D
Deviation
Neet Sales 17592 17610 ‐0.1% 16950 4%
Public &  EB
BIDTA 1651 3560 ‐
‐53.6% 3560 ‐54%
Others Promotters
21% 46%
% EB
BIDTA margin  9.4% 20.2% (10080bps) 21.0% (1200bps)
PA
AT 865 1990 ‐
‐56.5% 2200 ‐61%
PA
AT margin (%) 4.9% 11.3% (6640bps) 13.0% (800bps)
FIIs Sou
urce: Company, Ja
aypee Research 
13%

Banks, MFs  Su
urging  inputt  costs  advversely  impacted  marggins:  Total  cost 
c of  the
& Fis
20% company increaased by 16% YoY to `3300
0/tonne as co
ompared to `2840/tonne
  in  Q3CY09. Higher purchase
e of clinker and increase in slag and flyy ash prices
 
Jinal Jo
oshi  t `674  as  co
has  led  to  increease  in  Raw‐‐material  costt  per  tonne  to  ompared  to
Sr. Ressearch Analyst  `5
582 in Q3CY09 9.  Rising coaal and power  costs would  have increaseed power &
jinaljoshi@jaypeeinddia.com  fueel  cost  of  the  company  but 
b lower  cliinker  production  has  resttricted  it  to
+91‐22 2‐4354 2012 
+91‐98 833994646  `7
754/tonne  ass  against  `72 23/tonne  in  Q3CY09.  Other  expenditture  of  the
company  also  jumped  to  `1143/tonnee  (40%  YoY  and  32%  Qo oQ)  due  to

  S
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ngs:
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Fi i l Pl i & M t l F d Di t ib b ti
 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
increase in royalty and packing material, provision for inventory obsolescence
etc.  
Lowest  ever  EBIDTA/tonne  and  PAT  margin  recorded  in  the  company’s
history – but concerns are not long term. 

Outlook and valuation: At current market price of `990, stock is trading at
a  trailing  PE  of  16.8x  discounting  four  quarters  EPS  of  `59.    On  account  of
several hike  in cement realizations, ACC’s stock price has run‐up by almost
20%  in  last  2months  achieving  our  target  price  of  `981  mentioned  in  our
initiating report on the stock dated June 04’10. 
We have revised our financials for the company giving effect on higher input
costs  and  hiked  in  cement  realizations.    We  have  reduced  our  Net  sales
estimation by 10% and 11% for CY10E and CY11E respectively due to higher
than expected fall in realizations and higher input costs  while EPS estimation
by 26% and 20% for CY10E and CY11E respectively. 
We are downgrading our view on the company to ‘HOLD’ from earlier ‘BUY’
with revised target price of `958. 
We  have  valued  the  company  at  EV/EBIDTA  of  6.5x  and  EV/tonne  of  $105
discounting its CY11E EBIDTA and capacity respectively.  
Change in financial projections: 
CY10E CY11E
(` in mn) Current Earlier Variation Current Earlier Variation
Net Sales 81526 90741 ‐10% 90868 101917 ‐11%
EBIDTA 18908 24147 ‐22% 22931 26619 ‐14%
PAT 10498 14292 ‐27% 13230 16442 ‐20%
EPS (`) 55.9 76.1 ‐26% 70.4 87.5 ‐20%
Source: Company, Jaypee Research 
 
Assumption of Ev/ton Assumption of EV/EBIDTA
Expected Ev/ton 105 Target EV/EBIDTA 6.5
Rs/US$ 46 EBIDTA after 2years 22931
capacity after 2years 30 EV 149052
Ev  146591 add: cash 37902
add: cash and Investment 37902 less: liabilities 5669
less: liabilities 5669 No of Shares 188
No of Shares 188 Target price 965
Target price 951

(all figures in ` mn) 

Source: Company, Jaypee Research 
 

 
 
 
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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
 
Financial Performance  
(` in mn.) Q3CYʹ10 Q3CYʹ09 Growth  (YoY) Q2CYʹ10 Growth (QoQ)
Net Sales 17591.8 20773.8 ‐15% 21668.9 ‐19%
Other Inc. 0.0 0.0 ‐ 429.0 ‐100%
Total Inc. 17591.8 20773.8 ‐15% 22097.9 ‐20%

Expenditure
Raw Mat. 3256.2 2918 12% 3748.8 ‐13%
Power & Fuel 3643.9 3624 1% 3963.5 ‐8%
Freight Exp. 2249.2 2542 ‐12% 2690.8 ‐16%
employee cost 1268.7 1082 17% 1148.0 11%
Other Exp. 5522.6 4066 36% 4607.5 20%

PBDIT 1651.25 6541 ‐75% 5939.29 ‐72%

Other income 818.2 523 56% 181.0 352%
Depreciation 1002.4 876 14% 1046.8 ‐4%
Interest 164.2 136 21% 141.6 16%
Minority Interest 0.4 1 ‐56% 0.0 2419%
excp.item ‐2.7 0 ‐ 0.0 ‐
PBT 1302.4 6052 ‐78% 4931.9 ‐74%
Tax 437.4 1898 ‐77% 1437.2 ‐70%
PAT 865.0 4153 ‐79% 3494.8 ‐75%
EPS (Rs.) 4.6 22.1 ‐79% 18.6 ‐75%

PBDIT Margin 9.4% 31.5% ‐22.10% 26.9%

PAT Margin 4.9% 20.0% ‐15.08% 15.8%  
 
 
(in `) Q3CY10 Q3CY09 Growth  (YoY) Q2CY10 Growth (QoQ)
Revenue 3642 4146 ‐12% 4154 ‐12%

Raw Mat. 674 582 15.8% 705 ‐4.3%

P&F cost / tonne 754 723 4.3% 745 1.3%
Freight cost / tonne 466 507 ‐8.2% 506 ‐7.9%
employee cost 263 216 21.6% 216 21.7%
Other Exp. 1143 812 40.9% 866 32.0%

EBIDTA  342 1306 ‐73.8% 1116 ‐69.4%  

Source: Company, Jaypee Research 
   

  Service offerings:
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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
 
4000 705 674 800 4100 708 754 760
599 736 745
3500 700 4000 750
577 587

P&F cost/tonne (`)
RM cost/tonne (`)
3000 600 3900 740
2500 500 730

` in Mn
3800 716 3948
2000 3749 400 720
3344 3256 3700 3976 3964
1500 2918 3168 300 710
` in.Mn

1000 200 3600 700

3500 3624 3644
500 100 690
0 0 3400 680

Raw Material cost RM cost/tonne P&F cost   P&F cost/tonne

   
3500 502 570 491 506 600 6000 909
931 1143 1400
466
P&F cost/tonne (`)

P&F cost/tonne (`)
3000 500 5000 804 1200
2500 866 1000
400 4000
` in Mn

2000 2741 5193 800

300 3000 5523
1500 3080 2691 4908 4608 600
2542 2249 200 2000 4066
1000 400
100 1000
` in Mn

500 200
0 0 0 0

Frieght cost    Freight cost/tonne Other expenditure Other Exp/tonne

   
1600 35% 33%
1366 29%
1400 30% 27%
1172 1116 24%
1200 25%
Percentage 

925
1000
20%
in `

800 22%
895 15% 19% 18% 9%
600 767 738 342 17%
632 10%
400
200 5%
5%
180 0%
0
Q3CY09 Q4CY09 Q1CY10 Q2CY10 Q3CY10 Q3CY09 Q4CY09 Q1CY10 Q2CY10 Q3CY10
EBIDTA/tonne PAT/tonne EBIDTA m (%) PAT m (%)
 
 
Source: Company, Jaypee Research 

   

  Service offerings:
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 Equity Research  
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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
Operational Performance      Cash Flows
Particulars (` mn)  CY'08   CY'09   CY'10E  CY'11E  Particulars (` mn) CY'08 CY'09 CY'10E CY'11E
Profit After Tax 10996.5 15639.1 10497.7 13230.5
 Net Sales   77,196.9   84,795.5   81,526.2   90,867.9  Depreciation 3205.3 3731.3 4209.1 4853.6
 Other Income                ‐                  ‐                  ‐                  ‐    Misc Exp w/o 15.3 0.0 0.0 0.0
 Total Income   78,862.1   86,449.5   82,644.6   94,252.3  Change in WC 5435.5 5715.9 ‐30.0 ‐30.0
 Cost of Sales    60,557.5    60,172.8    63,736.9    71,321.3  Opg. Cash Flow 19652.6 25086.3 14676.7 18054.1
 PBDILT   18,304.6   26,276.7   18,907.6   22,931.0  Inc/(Dec)Gr.Block 5216.5 10510.3 17500.0 3300.0
 Depreciation      3,205.3      3,731.3      4,209.1      4,853.6  Inc/(Dec) in CWIP 9661.2 5460.7 ‐17500.0 0.0
 PBILT   15,099.3   22,545.4   14,698.6   18,077.4  Inc/(Dec) in Inv. ‐2737.4 6752.3 10000.0 10000.0
 Finance charges         399.8         843.6         564.9         564.9  C.F.Investing 12140.3 22723.3 10000.0 13300.0
 Op. Profit bfr Tax   14,699.5   21,701.8   14,133.7   17,512.5  Dividend paid 4391.2 5051.4 5497.2 5497.2
 Extra‐ord. Items      1,548.7         805.2      1,534.5      2,234.5  Chg. in T. Liab 46.4 848.9 0.0 0.0
 PBT   16,248.2   22,507.0   15,668.2   19,747.0  Chg in Share Cap. ‐0.5 0.6 0.0 0.0
 Less: Tax      5,251.7      6,867.9      5,170.5      6,516.5  C.F.Financing  ‐4345.3 ‐4201.9 ‐5497.2 ‐5497.2
 PAT   10,996.5   15,639.1   10,497.7   13,230.5  Op. Cash Balance 7464.1 9914.8 7544.2 6723.7
Cl. Cash Balance 9914.8 7544.2 6723.7 5980.6

Balance‐sheet Financial Ratio
Particulars (`mn) CY'08 CY'09 CY'10E CY'11E CY08 CY09 CY10E CY11E
Assets Profitability and Return Ratios (%)
Fixed Assets 52717.9 65359.0 61150.0 59596.3 PBDIT Margin 23% 30% 23% 24%
Investments 5168.8 11921.1 21921.1 31921.1 PAT Margin 14% 18% 13% 14%
NCA/NWC ‐4810.7 ‐12897.2 ‐13687.7 ‐14400.8 ROCE/ROI 33% 40% 24% 28%
Current Assets 27027.7 23301.7 22611.2 21998.1 RONW 24% 29% 17% 20%
Current Liabilities 0.0 78.6 80.5 24.5
Total Cap. Empld 53076.0 64382.9 69383.3 77116.6 Liquidity Ratio
 Liabilities Current Ratio (x) 0.8 0.6 0.6 0.6
Share Capital 1878.8 1879.4 1879.4 1879.4 Cash Ratio (x) 0.5 0.5 0.2 0.2
Reserves 46388.2 56843.7 61844.1 69577.4
Misc exp not w/o 11.3 9.7 9.7 9.7 Turnover and Leverage ratio
Net Worth 48255.7 58713.4 63713.8 71447.1 Overall Gearing Ratio (x) 0.1 0.1 0.1 0.1
Term Liabilities 4820.3 5669.2 5669.2 5669.2 Interest Coverage 37.8 26.7 26.0 32.0
Total Cap. Empld 53076.0 64382.9 69383.3 77116.6
Valuation Ratio 
PE 8.2 11.8 17.3 13.7
P/BV 1.9 3.1 2.8 2.5
EV/EBIDTA 9.5 6.5 8.5 6.6
EV/Tonne 167 142 116 109
 

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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
From Jaypee Institutional Equities Desk 

 
   

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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
Jaypee’s Institutional Equities Desk 
 
RESEARCH

Head of Equity Research Oil & Gas Automobiles

Abbas Merchant (9122) 4354 2010 Chirag Dhaifule (9122) 4354 2015 Gaurant Dadwal (9122) 4354 2018

Information Technology Metals & Mining Capital Goods

Vijay Gautam (9122) 4354 2019 Rahul Singhvi (9122) 4354 2016 Chirag Muchhala (9122) 4354 2007
Krupa Shah  (9122) 4354 2019 Sumit Poddar (9122) 4354 2016 Ruchika Dalmia  (9122) 4354 2007

Pharmaceuticals Power & Shipping Real Estate

Praful Bohra (9122) 4354 2011 Jyotsna Sawdekar (9122) 4354 2017 Hitendra Gupta (9122) 4354 2023
Divya Agarwal (9122) 4354 2011 Prasun Kumar  (9122) 4354 2017 Paras Shah  (9122) 4354 2023

Cement Infrastructure Economics

Jinal Joshi  (9122) 4354 2012 Amit Kumar (9122) 4354 2024 Prasad Shete (9122) 4354 2007

FMCG Telecom Technical

Sachin Bobade  (9122) 4354 2013 Archit Singhal (9122) 4354 2009 Pranjal Shah (9122) 4062 1004

Media Small Caps Quantitative

Priyanka Jhadhav (9122) 4354 2014 Kavita Karwa (9122) 4354 2001 Anilesh Unnikrishnan (9122) 4062 1016
Raunak Chandra (9122) 4062 1016
Vinit Jain  (9122) 4062 1016

SALES

Sales (Asia) Sales Trading (Equity) Sales Trading (Derivatives)

Vishad Turakhia (9122) 4062 1012 Krishnakant Purohit (9122) 4062 1018 Premal Shah (9122) 4062 1004
Hitash Dang (9122) 4354 1017 Pramod Bane (9122) 4062 1000 Shirish Garodia (9122) 4062 1008
Rajat Vohra (9122) 4062 1011 Jaiprakash Kataria (9122) 4062 1003 Ravi Agarwal (9122) 4062 1009
Gautam Trehan (9122) 4354 2025 Gaurav Shah (9122) 4062 1007 Rahul Sanghvi (9122) 4062 1009
Mahesh Bohra (9122) 4062 1005 Dhruval Gala (9122) 4062 1032
Sales (United States) Yogesh Dhumal (9122) 4062 1002 Deep Shroff (9122) 4062 1032
Khushbu Gupta (1 347) 647 1003 Sumeet Ramchandani (9122) 4062 1052 Deepak Purohit (9122) 4062 1099
Amit Bansal (1 405) 269 1322 Jitendra Tolani (9122) 4062 1052 Vishal Vadel (9122) 4062 1099
 

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 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
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  Service offerings:
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               www.jaypeeusa.com
www.jaypeeindia.com
 Financial Planning & Mutual Fund Distribution
 
 ACC Ltd Result update Jaypee Research Desk
  Oct 22 ’10
equityresearch@jaypeeindia.com
research@jaypeeusa.com

 
Jaypee Offices Worldwide:

New York 
150 Broadway 
Suite 2200 
New York, NY 10038 
+1 212 537 6271 
sales@jaypeeusa.com 

Chicago 
30 South Wacker Drive 
Suite 1700 
Chicago, IL 60606 
+1 312 254 5044 
sales@jaypeeusa.com 

New Delhi 
1114, Naurang House  
21, K.G. Marg 
New Delhi ‐ 110 001, India 
+91 11 6630 3030  Exchange Memberships 
sales@jaypeeindia.com 

Mumbai 
505, Arcadia 
195, Nariman Point, 
Mumbai ‐ 400 021, India 
+91 22 4062 1020 
sales@jaypeeindia.com 
 
Singapore 
2 Shenton Way 
#10‐02 SGX Centre 1 
Singapore 068804 
+65 6438 0095 
sales@jaypeesg.com 
 

  Service offerings:
 Trading, Advisory & Depository Services   

 Equity Research  
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www.jaypeeindia.com
 Financial Planning & Mutual Fund Distribution