4QCY2012 Result Update Cement February 11, 2013 ACC Performance Highlights Quarterly results (Standalone) Y/E Dec. (` cr) 4QCY2012 3QCY2012 % chg qoq 4QCY2011 % chg yoy Net sales 3,099 2,445 26.8 2,503 23.8 Operating profit 398 464 (14.3) 442 (9.9) OPM (%) 12.8 19.0 (616)bp 17.7 (481)bp Reported Net profit 239 249 (3.8) 470 (49.1) Source: Company, Angel Research ACC s 4QCY2012 net profit fell by 3.8% yoy to `239cr, and the same was below our estimate. Realizations for the company, although higher by 2.0% on a yoy basis, fell by 3.8% on a qoq basis. OPM at 12.8%, down 481bp on a yoy basis: ACC posted a 24% yoy growth in standalone top-line to `3,098cr. Adjusted for sales of the ready mix concrete (RMC) segment, which were included in the standalone sales (w.e.f 4QCY2012), the top-line growth for the quarter remained flat. Volume growth remained flat on a yoy basis. Even for CY2012, ACC posted a modest performance with volumes growing by a modest 1.6%. The overall OPM stood at 12.8%, down 481bp on a yoy basis, impacted by increase in freight costs and also due to low margins for the RMC business (which got included in standalone business during the quarter). Adjusting for the RMC business, we estimate the OPM for the company to be 14.8%. The adjusted profit after tax stood at `239cr, down 1.3% (4QCY2011 had tax reversal of `228cr) on a yoy basis. Outlook and valuation: We expect ACC to register a 13.4% yoy growth in its top-line over CY2011-13. The bottom-line is expected to post a CAGR of 3% over the same period. At current levels, the stock is trading at an EV/tonne of US$119 on CY2013E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock. NEUTRAL CMP `1,261 Target Price - Investment Period - Stock Info Sector Cement Market Cap (` cr) 23,674 Net Debt (` cr) (1,804) Beta 0.8 52 Week High / Low 1515/1105 Avg. Daily Volume 26,307 Face Value (`) 10 BSE Sensex 19,461 Nifty 5,898 Reuters Code Bloomberg Code ACC.BO ACC@IN Shareholding Pattern (%) Promoters 50.3 MF / Banks / Indian Fls 10.2 FII / NRIs / OCBs 20.4 Indian Public / Others 19.1 Abs. (%) 3m 1yr 3yr Sensex 4.4 9.9 20.7 ACC (11.6) (4.5) 46.0 Key financials (Standalone) Y/E Dec. (` cr) CY2010 CY2011 CY2012E CY2013E Net sales 7,717 9,439 11,130 12,138 % chg (3.9) 22.3 17.9 9.1 Adj. Net profit 1,120 1,325 1,411 1,408 % chg (30.3) 18.3 6.5 (0.3) OPM (%) 23.5 20.3 19.9 19.6 FDEPS (`) 59.6 70.5 75.1 74.9 P/E (x) 21.2 17.9 16.8 16.8 P/BV (x) 3.7 3.3 3.2 2.9 RoE (%) 17.9 19.4 19.4 18.1 RoCE (%) 19.9 18.0 19.2 20.3 EV/Sales (x) 2.6 2.3 1.9 1.7 EV/tonne (US$)* 155 136 121 119 Installed capacity (mtpa) 27 30 30 30 EV/EBITDA (x) 11.2 11.2 9.4 8.5 Source: Company, Angel Research ;Note: *adjusted for CPP V Srinivasan 022-39357800 Ext 6831 v.srinivasan@angelbroking.com Please refer to important disclosures at the end of this report 1
Exhibit 1: 4QCY2012 performance (Standalone) Y/E Dec. (` cr) 4QCY12 3QCY12 % chg qoq 4QCY11 % chg yoy CY12 CY11 % chg yoy Net Revenues 3,099 2,445 26.8 2,503 23.8 11,130 9,430 18.0 Other Operating Income 81 29 174.6 52 53.8 228 231 (1.4) Total Operating Income 3,180 2,474 28.5 2,555 24.4 11,358 9,660 17.6 Net Raw-Material Cost 794 306 159.5 422 88.2 1,784 1,216 46.8 (% of Sales) 25.6 12.5 16.9 16.0 12.9 Power & Fuel 535 567 (5.5) 584 (8.3) 2,382 2,183 9.1 (% of Sales) 17.3 23.2 23.3 21.4 23.2 Staff Costs 208 141 48.3 155 34.0 617 533 15.7 (% of Sales) 6.7 5.7 6.2 5.5 5.7 Freight & Forwarding 606 488 24.2 376 60.9 2,233 1,894 17.9 (% of Sales) 19.5 20.0 15.0 20.1 20.1 Other Expenses 638 509 25.4 576 10.8 2,146 1,913 12.2 (% of Sales) 20.6 20.8 23.0 19.3 20.3 Total Expenditure 2,782 2,010 38.4 2,113 31.6 9,162 7,740 18.4 Operating Profit 398 464 (14.3) 442 (9.9) 2,196 1,921 14.3 OPM (%) 12.8 19.0 (616)bp 17.7 (481)bp 19.7 20.4 (64)bp Interest 27 26 6 19 42.2 115 97 18.3 Depreciation 158 135 16.5 127 24.0 559 475 17.6 Other Income 66 55 21.0 46 44.4 265 192 38.0 PBT (ecl. Extr. items) 279 358 (22.0) 341.4 (18.2) 1,787 1,540 16.0 Extr. Income/(Expense) - - - (335.3) - PBT (incl. Extr. Items) 279 358 (22.0) 341 (18.2) 1,452 1,540 (5.8) Provision for Taxation 40 109 (63.5) (129) (131.0) 390 215 81.4 (% of PBT) 14.3 30.6 (37.8) 26.9 14.0 Reported PAT 239 249 (3.8) 470 (49.1) 1,061 1,325 (19.9) PATM (%) 7.7 10.2 (245)bp 18.8 (1108)bp 9.5 14.1 (452)bp Source: Company, Angel Research Exhibit 2: Financial performance (` cr) 3,500 3,000 2,500 2,000 1,500 1,000 500 0 3,099 2,860 2,778 2,503 2,445 2,403 2,150 470 418 337 249 239 168 155 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 Net Sales Reported PAT OPM (RHS) 26 24 22 20 18 16 14 12 10 (%) Source: Company, Angel Research February 11, 2013 2
Exhibit 3: 4QCY2012 Actual vs Angel estimates (` cr) Actual Estimates Variation (%) Net sales 3,099 2,768 12.0 Operating profit 398 490 (18.9) OPM (%) 12.8 17.7 (488)bp Net profit 239 289 (17.2) Source: Company, Angel Research Performance highlights Robust top-line growth led by better realization ACC posted a 24% yoy growth in its standalone top-line to `3,099cr. Adjusted for the sales of RMC segment, which were included in the standalone sales (w.e.f 4QCY2012) top-line growth for the quarter remained flat. Volumes for the quarter remained flat. Realizations for the company, although higher by 2.0% on a yoy basis, fell by 3.8% on a qoq basis. Higher realization leads to OPM expansion The overall OPM stood at 12.8% down 481bp on yoy basis, impacted by increase in freight costs and also due to low margins for the RMC business, which got included in the standalone business during the quarter. Adjusting for the RMC business, we estimate the OPM for the company to be at 14.8%. The adjusted profit after tax stood at `239cr down 1.3% on a yoy basis. Per tonne analysis During 4QCY2012, ACC s realization/tonne improved by 2.0% yoy to `4,531. Power & fuel cost/tonne fell by 10.5% yoy to `884. Even, on a q-o-q basis, the power & fuel cost/tonne fell by 16.3%. The freight cost/tonne increased by 11.2% yoy to `932. The operating profit/tonne stood at `661, down 10.4% yoy. Exhibit 4: Operational performance Parameter (`) 4QCY12 3QCY12 4QCY11 yoy chg (%) qoq chg (%) Realization/tonne 4,531 4,708 4,441 2.0 (3.8) Net Raw-material cost /tonne 913 688 770 18.6 32.6 Power and fuel cost /tonne 884 1057 988 (10.5) (16.3) Freight cost/tonne 932 919 838 11.2 1.4 Other expenses/ tonne 1,074 942 968 11.0 14.0 Operating profit/tonne 661 863 738 (10.4) (23.4) Source: Company, Angel Research February 11, 2013 3
Investment rationale Favorable capacity location to augur well for ACC Around 51% of ACC's total capacity is located in states where either cement supply is less than demand or, if it is more, the excess can economically be supplied to nearby supply-deficit states. Hence, all its capacities can rationally achieve higher utilization. Its entire south India plant capacity is in Karnataka and Tamil Nadu, where the demand-supply dynamics are far better than that in Andhra Pradesh. Higher fuel availability for CPPs leading to lower power and fuel costs Going ahead, we expect power and fuel cost to be lower for the company, as it currently has 85% self sufficiency in its power requirement with a 361MW captive power plant (CPP), and access to the highest coal linkage in the industry along with few captive coal blocks. Outlook and valuation We expect ACC to register a 13.4% yoy growth in its top-line over CY2011-13E. The bottom-line is expected to post a CAGR of 3% for the same period. At current levels, the stock is trading at an EV/tonne of US$119 on CY2013E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock. Exhibit 5: One-year forward EV/tonne EV (` mn) 300,000 250,000 200,000 150,000 100,000 50,000 0 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Source: BSE, Company, Angel Research; EV/tonne $100 $120 $140 $160 February 11, 2013 4
Exhibit 6: Recommendation summary Company Reco CMP Tgt. Price Upside FY2014E FY2014E FY2012-14E FY2014E EV/tonne^ (`) (`) (%) P/BV (x) P/E (x) EPS CAGR RoE (%) US $ ACC* Neutral 1,261 - - 2.9 16.8 3.1 18.1 126 Ambuja Cements* Neutral 189 - - 3.2 15.0 24.3 20.7 163 India Cements Neutral 83 - - 0.7 7.7 5.5 9.0 63 JK Lakshmi Neutral 135 - - 1.0 5.9 37.3 17.7 54 Madras Cement Neutral 236 - - 2.0 12.7 7.3 16.9 89 Shree Cements Neutral 4,411 - - 3.3 13.2 35.9 28.4 150 UltraTech Cements Neutral 1,910 - - 2.9 16.3 14.5 19.5 191 Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis Company Background In 2005, ACC was acquired by the world's second largest cement company, Holcim. Currently, the Holcim Group in India (ACC and Ambuja Cements taken together) has the largest cement capacity in the country (57mtpa). ACC has a standalone total capacity of 30mtpa, with 16 cement plants spread across the country. Similar to UltraTech, the company is also a pan-india player but with a southern inclination (36% of its total capacity is in south as against 22% in north, 22% in east and northeast, 17% in central and 4% in west). February 11, 2013 5
Profit & loss statement (Standalone) Y/E Dec. (` cr) CY08 CY09 CY10 CY11 CY12E CY13E Total Operating Income 7,283 8,191 7,976 9,660 11,358 12,366 % chg 3.9 12.5 (2.6) 21.1 17.6 8.9 Total Expenditure 5,550 5,547 6,163 7,740 9,148 9,991 Net Raw Materials 886 956 1,168 1,503 1,784 1,964 Other Mfg costs 1,599 1,540 1,599 2,183 2,382 2,502 Personnel 416 368 462 526 617 654 Other 2,648 2,684 2,935 3,527 4,364 4,871 EBITDA 1,733 2,644 1,812 1,921 2,210 2,375 % chg (9.6) 52.6 (31.5) 6.0 15.1 7.4 (% of Net Sales) 23.8 32.9 23.5 20.3 19.9 19.6 Depreciation& Amortisation 294 342 393 475 559 574 EBIT 1,439 2,302 1,420 1,445 1,652 1,800 % chg (10.8) 60.0 (38.3) 1.8 14.3 9.0 (% of Net Sales) 19.8 28.7 18.4 15.3 14.8 14.8 Interest & other Charges 40 84 57 97 115 85 Other Income 338 77 98 192 265 295 (% of PBT) 18.9 3.3 6.7 12.5 18.1 14.7 Recurring PBT 1,737 2,294 1,461 1,540 1,802 2,011 % chg 1.1 32.1 (36.3) 5.4 17.0 11.6 Extraordinary Expense/(Inc.) (49) - - - 335 - PBT (reported) 1,785 2,294 1,461 1,540 1,466 2,011 Tax 524 688 341 215 390 603 (% of PBT) 29.3 30.0 23.4 14.0 26.6 30.0 Adjusted PAT 1,213 1,607 1,120 1,325 1,411 1,408 % chg (1.0) 32.5 (30.3) 18.3 6.5 (0.3) (% of Net Sales) 16.7 20.0 14.5 14.0 12.7 11.6 Basic EPS (`) 64.6 85.5 59.6 70.5 75.1 74.9 Fully Diluted EPS (`) 64.6 85.5 59.6 70.5 75.1 74.9 % chg (1.1) 32.4 (30.3) 18.3 6.5 (0.3) February 11, 2013 6
Balance sheet (Standalone) Y/E Dec. (` cr) CY08 CY09 CY10 CY11 CY12E CY13E SOURCES OF FUNDS Equity Share Capital 188 188 188 188 188 188 Reserves & Surplus 4,740 5,828 6,282 7,004 7,195 7,955 Shareholders Funds 4,928 6,016 6,469 7,192 7,383 8,143 Total Loans 482 567 524 1,001 623 598 Deferred Tax Liability 336 349 362 518 517 517 Total Liabilities 5,746 6,932 7,355 8,712 8,523 9,258 APPLICATION OF FUNDS Gross Block 5,836 6,826 8,077 9,576 9,322 9,577 Less: Acc. Depreciation 2,366 2,668 2,995 3,438 3,997 4,571 Net Block 3,470 4,158 5,082 6,138 5,325 5,006 Capital Work-in-Progress 1,603 2,156 1,563 435 850 1,527 Goodwill - - - - - - Investments 679 1,476 1,703 1,625 2,554 2,555 Current Assets 2,760 2,256 2,753 3,791 3,198 3,623 Cash 984 708 980 1,653 678 519 Loans & Advances 651 554 624 836 1,053 1,144 Other 1,124 994 1,149 1,302 1,466 1,960 Current liabilities 2,766 3,114 3,746 3,277 3,403 3,453 Net Current Assets (6) (858) (993) 514 (206) 170 Misc. Exp. not written off - - - - - - Total Assets 5,746 6,932 7,355 8,712 8,523 9,258 February 11, 2013 7
Cash flow statement (Standalone) Y/E Dec. (` cr) CY08 CY09 CY10 CY11 CY12E CY13E Profit before tax 1,785 2,294 1,461 1,540 1,466 2,011 Depreciation 294 342 393 475 559 574 Interest expense 40 84 57 97 115 85 Change in Working Capital 309 575 407 (703) (255) (535) Less: Other income 338 77 98 192 265 295 Direct taxes paid 564 727 395 215 390 603 Cash Flow from Operations 1,527 2,492 1,825 1,003 1,230 1,236 (Inc)/ Decin Fixed Assets (1,325) (1,544) (657) (371) (161) (932) (Inc)/ Dec in Investments 166 (797) (227) 78 (929) (1) Other income 338 77 98 192 265 295 Cash Flow from Investing (822) (2,264) (786) (102) (825) (638) Issue of Equity 2 - - - - - Inc./(Dec.) in loans 13 85 (43) 478 (378) (25) Dividend Paid (Incl. Tax) 439 505 667 609 618 647 Others 40 84 57 97 383 85 Cash Flow from Financing (464) (505) (767) (229) (1,380) (757) Inc./(Dec.) in Cash 241 (276) 272 672 (974) (159) Opening Cash balances 743 984 708 980 1,653 678 Closing Cash balances 984 708 980 1,653 678 519 February 11, 2013 8
Key ratios Y/E Dec. CY08 CY09 CY10 CY11 CY12E CY13E Valuation Ratio (x) P/E (on FDEPS) 19.5 14.7 21.2 17.9 16.8 16.8 P/CEPS 15.2 12.2 15.7 13.2 14.5 12.0 P/BV 4.8 3.9 3.7 3.3 3.2 2.9 Dividend yield (%) 1.6 1.8 2.4 2.2 2.3 2.4 EV/Sales 2.9 2.5 2.6 2.3 1.9 1.7 EV/EBITDA 12.3 7.7 11.2 11.2 9.4 8.5 EV / Total Assets 3.7 2.9 2.8 2.5 2.4 2.2 Per Share Data (`) EPS (Basic) 64.6 85.5 59.6 70.5 75.1 74.9 EPS (fully diluted) 64.6 85.5 59.6 70.5 75.1 74.9 Cash EPS 82.8 103.7 80.5 95.8 87.0 105.5 DPS 20.0 23.0 30.5 28.0 28.4 29.7 Book Value 262.3 320.1 344.2 382.7 392.8 433.3 DuPont Analysis (%) EBIT margin 19.8 28.1 17.8 15.0 14.5 14.6 Tax retention ratio 70.7 70.0 76.6 86.0 73.4 70.0 Asset turnover (x) 2.0 1.8 1.6 1.8 1.9 2.0 ROIC (Post-tax) 27.3 35.1 21.4 22.7 20.7 20.2 Returns (%) ROCE (Pre-tax) 26.9 36.3 19.9 18.0 19.2 20.3 Angel ROIC (Pre-tax) 55.4 90.8 49.8 35.7 35.0 39.6 ROE 26.7 29.4 17.9 19.4 19.4 18.1 Turnover ratios (x) Asset Turnover (Gross Block) 1.3 1.3 1.1 1.1 1.2 1.3 Inventory / Sales (days) 38 35 39 38 36 40 Receivables (days) 15 11 9 7 8 9 Payables (days) 159 193 203 166 133 125 WC cycle (ex-cash) (days) (40) (57) (81) (59) (33) (18) Solvency ratios (x) Net debt to equity (0.2) (0.2) (0.3) (0.3) (0.3) (0.2) Net debt to EBITDA (0.7) (0.5) (1.0) (1.0) (0.9) (0.9) Interest Coverage (EBIT / Int.) 36.0 27.3 25.0 14.9 14.4 21.3 February 11, 2013 9
Research Team Tel: 022-39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement ACC 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%) February 11, 2013 10