Share Market Update on ACC for 2QCY2011

Share Market Update on ACC for 2QCY2011 with a Neutral recommendation.

For 2QCY2011, ACC posted a 6.2% decline in its bottom line; however, it was ahead of our estimates. The bottom-line decline was despite higher realisations, as the company faced margin pressure on account of higher power and fuel costs and freight costs. During the quarter, ACC faced the full impact of the domestic coal price hike carried out by Coal India. Realisation was higher as cement prices, which touched the peak in March 2011 remained strong until May.
At current levels, we maintain our Neutral view on the stock.

OPM at 24.1%, down 527bp yoy:  ACC posted an 18.9% yoy growth in net sales to `2,403cr on account of growth in dispatches and better realisation.
The company’s dispatches for the quarter stood at 5.9mn tonnes, up 12.5% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. However, on a sequential basis, dispatches declined by 3.7%, indicating the lukewarm demand scenario. Realisation also improved by 5.7% yoy and 4.1% qoq to `4,052/tonne.

Outlook and valuation: All-India cement dispatches, which witnessed a marginal decline in 1QFY2012, are expected to pick-up post the monsoons. Demand growth is expected to be driven by infrastructure activities with FY2012 being the last year of the Eleventh Plan. However, the ongoing SFIO investigation on cement pricing might soften the extent of price recovery. We expect ACC to register a 16.0% CAGR in its top line over CY2010–12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 4.6% over the mentioned period due to higher operating costs. At current levels, the stock is trading at EV/EBITDA of 6.8x and EV/tonne of US$110, based on CY2012 estimates. We maintain our Neutral view on the stock, as we believe it is fairly priced.

Result Flash on TajGVK for 4QFY2011

·         TajGVK reported a top-line growth of 10.0% yoy with sales of Rs70cr (Rs63cr), which was below our estimates of Rs75cr. Net profits increased by 5.8% yoy to Rs12.9cr (Rs12.2cr).

·         OPM declined by 181 bps to 39.7% (41.5%), mainly because of higher employee expenses. The OPM for 4QFY2011 was in-line with our estimates of 40.0%.

·         PAT margins at 18.5% were also in-line with our estimates of 18.6%, but were 73 bp below 19.2% in 4QFY2010.

The Hotel industry continues to witness a steady recovery, with an improvement in the Foreign Tourist Arrivals (FTA) and the overall economy. For TajGVK, the Chennai and Chandigarh hotels have clocked impressive occupancy rates of 74% and 75% during the quarter. In FY2012, TajGVK is expected to add a 189 rooms hotel, increasing its owned rooms to 1,086 from 897 currently. Moreover, it is also looking at building a hotel in Bengaluru and hotels under the brand ‘Ginger’ across Andhra Pradesh. The stock is trading at attractive valuations, given its own historical valuation levels and the discount at which it is trading at compared to its peers. We maintain a Buy on the stock. We may revise our numbers post the management call.    

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var (%)
Revenue	70	75	(6.9)
EBITDA	28	30	(7.6)
OPM (%)	39.7	40.0	(33) bp
PAT	13	14	(7.2)

Exhibit 2: 4QFY2011 Financial Performance

Key Financials

Y/E March (Rs cr)	FY2010	FY2011	FY2012E	FY2013E
Net Sales	229	261	309	344
% chg	(3.5)	13.7	18.7	11.3
Net Profit	36	43	60	70
% chg	(31.8)	19.2	39.0	17.0
EBITDA Margin (%)	37.8	37.5	40.4	40.6
FDEPS (Rs)	5.8	6.9	9.6	11.2
P/E (x)	17.6	14.8	10.6	9.1
P/BV (x)	2.2	2.0	1.7	1.5
RoE (%)	12.4	13.5	16.3	16.4
RoACE (%)	15.5	16.0	20.0	21.8
EV/Sales (x)	3.3	3.0	2.4	2.0
EV/EBITDA (x)	8.9	8.0	6.0	4.9