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.

Stock Market Result Update on Bharat Forge for 1QFY2012

Stock Market Result Update on Bharat Forge for 1QFY2012 with an Accumulate recommendation and a Target Price of `325 (12 months).

Strong standalone performance: Bharat Forge (BFL) registered strong 36.1% yoy (4.4% qoq) growth in its standalone revenue to `858cr, primarily aided by a 67.1% (6.4% qoq) and 17.4% (2.2% qoq) yoy jump in exports and domestic revenue, respectively. EBITDA margin remained stable on a yoy as well as qoq basis at 24.3%, despite a surge in commodity prices. As a result, BFL posted a 63.9% yoy (down 3% qoq) jump in its net profit to `97cr, beating our estimates, owing to better performance at the operating level and higher other income.

Consolidated performance, better than our expectations: BFL reported better-than-expected 37% yoy (1.5% qoq) growth in its top line to `1,568cr, largely aided by continued improvement in operations at its US and European subsidiaries. EBITDA margin came in marginally below our estimate at 15.8%, down by 23bp yoy and 56bp qoq. However, PBT came in above our expectation, up 60.4% yoy (2.3% qoq), to `153cr, largely aided by improved operating performance.

Outlook and valuation: We have revised our revenue and earnings estimates downwards to factor in the likely slowdown in the US and the European markets. Nonetheless, on account of the recent correction in the stock price, we maintain our Accumulate view on the stock. At `285, the stock is trading at 13.2x FY2013E EPS and 6.8x EV/EBITDA on a consolidated basis. Our revised target price works out to `325 (`351), at which levels the stock would trade at 15x P/E and 7.7x EV/EBITDA on FY2013E basis.