Research Report On ACC Cement

Key Stock Fundamental:-

Table:-1

About ACC:-

ACC was formed in the year 1936 by getting 10 cement companies together like Tatas, Khataus, Nixon.The companys core business is cement production and has its presence in pan india. ACC has 14 cement manufacture plant all over india and is ranked among the top of all cement companies. On 1 September 2006 the name of The Associated Cement Companies Limited was changed to ACC Limited. The company is the only cement company to get Superbrand status in India. ACC's operations are spread throughout the country with 15 modern cement factories, 26 Ready mix concrete plants, 21 sales offices, and several zonal offices. It has a workforce of more than 10000 persons and a countrywide distribution network of over 9,000 dealers.

Key Highlight:-

ACC is no 1 cement manufacturing company in India and it has a manufacturing capacity of 27mt pa in 2010. The company has 12% market share due to their strong marketing channel. Its market share in south, west, north, central and east region in India stands at around 25%,23%, 19%, 17% and 16% respectively which helps reduce the risk of geographical price volatility, demand and supply.

The Wadi cement plant of ACC Ltd. in Gulbarga district has the world's largest single kiln that has a capacity of producing 12,500 tonnes a day.

Presently ACC has its own lime stone mine and captive power plant which will helps reduce operating expenses.

ACC recently launchd new eco friendly cement named Costal+ which will protect houses from extreme weather.

Risk:-

Continuous increase in the cost of power, fuel, coal and railway fright charges.

Cyclical nature of cement business.

Key Financial Indicator:-

2010 2009 2008Income 77173.3 80272 72828.7Income Growth -3.86 10.22EBIDTA 18120 26440 18990EBIDTA Growth -31.47 39.23EBIDTA Margin (%) 18.15 28.43 21.05PAT 11200.1 16067.3 12127.9PAT Growth -30.29 32.48 -15.7PAT Margin 13.08 18.42 14.73Change in Gross blockEPS 59.65 85.58 64.62P/E (x) 18.03 10.18 7.4RONW (%) 17 27 25ROCE (%) 25 49 40ROE (%) 17.94 29.36 24.58P/BV (x) 3.12 2.72 1.82

Share Holding Pattern as on 30/12/2010

Stock price chart with indices:-

Comparative analysis:-

Q1FY2011 Performance analysis (Standalone):-

Top line and Bottom Line analysis:-

ACC Q1FY2011 operating income declined by ~13% to Rs 24235.35 million from Rs 21362.78 million last year Q1. This decline can be attributed to the fall in despatches quantity and decline despatches due to monsoon and flood in the country. Net profit of the company decreased by ~13% to Rs 3506.64 million from Rs. 4051.2 million. ACC margin declined due to decreased realisation (Rs/tonne) and increase in raw material costs like slag, fly ash, deprication, fuel charges, employee cost and stock adjustment. Companys substantial presence in all over India did not effect in realisation.

Pressure of Higher raw material costs on cement prices:-

Despite increased realization the company faced margin pressure in this quarter due to high cost of coal, slag, fly ash. Power and fuel costs are also a reason for cost pressure. Global fuel prices increased by~40% to reach US$ 110. Global coal price also increased by~30% to US$123/tonne. The price of domestic coal also increased by~21% in the month of March. ACC OPM margin fell by ~7% to 24.2%.

Operational Analysis:-

For Q1FY2011, ACC posted 14.1% y-o-y growth in its net sales to Rs 2,3981.6 million, aided by growth in volumes and higher realisations. Realisations were higher during the quarter on account of price hikes of Rs 30–40 per bag carried out by cement manufacturers across the country. Dispatch quantity also increased to 2.18 million tones from 1.94 million tonnes. Cumulative dispatch quantity for first quarter was 6.22 million tonne in comparison with last year it was 5.54 million tones. Operating profit of ACC in Q1FY2011 declined by 17% to Rs 4671.068 million from Rs 5631.689 million. Effective tax rate declined by ~200 bps to 27% from ~29%. OPM declined by ~ 700 bps to 19.2 % from ~ 26% last year Q1. NPM dipped by ~4% due to increased raw material cost, power and fuel cost. Q1Y2011 EPS was Rs 18.68 in comparison to last year ( Rs 21.58).

Per Tonne Analysis:-

Q1FY11 realisation/tonne improved by 15.3% to Rs 3896 from Rs 3496 in Q1FY10. However raw material cost/tonne increased significantly by 49% to Rs 593 from Rs 398 due to increased slag, fly ash. Power and fuel cost/tonne was up by ~22% in comparison to last year’s same quarter. But it decreased in comparison with Q4FY10 due to effective use the captive power. Operating profit/cost decreased by 17% in comparison to last year but was up o Rs 818/tonne from Rs 373/tonne in last quarter. Net profit realisation also went down by ~13% due to higher cost pressure but realisation improved Q-o-Q due to price increased to Rs 564 in the present quarter from Rs 223 in the last quarter.

Parameter (Rs) Q1FY11 Q1FY10 Q4FY10 Y-o-Y (%)Realisation/tone 3896 3379 3496 15.3Raw materialcost/tone 593 398 504 49.0power and fuel cost/tone 769 631 806 21.9Fright charge cost/tone 553 442 493 25.1Dep cost/tone 181 150 200 20.7Other expanses/tone 799 668 1013 19.6OP/ cost 751 905 373 -17.0Net profit/tone 564 651 223 -13.4

Volume in MMT:-

Parameter (MMT) 11-Mar 10-Mar Y-o-Y (%) 10-Dec Q-o-Q (%) FY10 FY09 Y-o-Y (%)Cement Capacity 7 6.3 11.1 7 0 26.17 22.16 18.10Cement Producation 6.22 5.54 12.3 5.65 10.1 21.2 21.2 0Capacity Utilisation (%) 88.9 87.9 80.7 81.0 95.8Cement Despatch 6.22 5.56 11.9 5.58 11.5 21.17 21.36 -0.9

Increased use of captive power to improve operating margin:-

Captive power has improved ACC’s cost competitiveness and quality of power. Share of captive power has increased to ~74% FY10 from ~70% FY09. Over the years, ACC has improved its efficiency, owing to which its power consumption/tonne of cement has declined.

Financial Highlights:-

ACC sale declined by 3.86% to Rs 77173.3 million from Rs 80272.0 million. Realisation (Rs/tonne) decreased by ~3% to Rs 3645 from Rs 3758. This realization decreased due to delivery quantity that came down from 21.36 mt to 21.17mt and demand. Operating expenses increased by 10.70% to Rs 66128.1 million from Rs 59732.3 million in comparison to last year. Operating expenses increased due to raw material consumption, power and fuel, machinary repair and change in stock. Raw material cost increased by 26% over the last year. The company increased the slag price and purchased the clinker from out side. Raw material Realisation (Rs/tone) increased by 33% over the last year. Power and fuel cost has marginally increased by 3.83%. But anyhow ACC was able to bring down the fuel costs under control both imported and coal. The increase in purchased power tariff led to increase in costs. Realisation cost/ tonne increased only by 10% in comparison with last year and its happened due to decrease in delivery quanity. Loading and transport charges surged by 10% due to increased clearing and fright charges. Excise Duties increased by 36.23% in 2011, due to increase in excise duty rate on captive consumption of clinker from Rs 300 per ton to Rs 375 per ton. Effective interest rate decreased by~ 3% due to Repayment of Rupee Term loan of Rs 50 cr. Operating profit (EBITDA) declined by 33% to Rs 1812.2 million from last year Rs 2644.6 million. Depreciation value has increased by 14.8% from last fiscal year. The increase in depreciation is on account of asset capitalization of Rs 1,3336.7 million as compared to Rs 1,0057.1 million in the previous year. During the current year, the company started the Bargarh capacity expansion, Wadi

capacity expansion, installation of grinding units at Kudithini and Thondebhavi and other capitalization. Net profit of ACC has declined by 30% to Rs 11200.1 million from Rs 16067.3 million.

Expansion:-

The Wadi cement plant of ACC Ltd. in Gulbarga district has the world's largest single kiln that has a capacity of producing 12,500 tonnes a day. For this project ACC had invested Rs. 900 crore for the second phase of the expansion of one of the largest cement plants in Asia. The total capacity of the plant of both the old and new units was five million tonnes a year. While 2 million tonnes of cement was being produced in the old plant, the modern fully automated second unit of the plant produces three million tonnes which will achive cement production 30mtpa.

ACC cement company is setting up a mega cement project of capacity 3 mtpa of cement at Ghughus in the Chandrapura district of maharastra at a cost of abot Rs 1500 Cr. It is a environment friendly plant. Here company also setting up Captive power plant (CPP) of 25 MW of capacity to cater to project's power requirment.

ACC started it's wind energy farm near Satra in Maharastra. These wind farm produce 2.5 MW power which will supply power to ACC Thana complex and Bulk Cement Corporation (BCC) a subsidiry of ACC. ECAPL a whole subsidary of ACC has added to produce 4 laks tone of slag cement in addition to Ground Granulated Blast Furnace Slag. Kuditnini Grinding plant inaugurated in Karnataka with capacity of 1.1mtpa PSC.

Acquisition:-

ACC are not running after small companies. The locations and position of companiesare of main interest for them. Acquiring 45% stake in Asian Concrete in Himachal Pradesh is a logistic gain for ACC. The acquisitions are small but interesting from the point of view of distribution cost, logistics cost and market rational.

ACC Mineral Limited entered into a JV with Madhya Pradesh State Mining Corporation of four coal block. Priliminary studies is conducting and some Govt clearence is in progress.

Future Plane:-

The company would be focusing on brand promotion in order to derive premium for its cement products with an objective of improving margins in future

ACC company is focusing on development of product which will increase the use of various application and development of application oriented cement based cementitious material.

Use of waste or byproducts in cement manufacture as an alternative materials.

Cement Industry Scenario:-

India is the world's second largest producer of cement after China. During September 2010, the cement production touched 12.54 million tonnes (MT), while the cement despatches quantity was 12.56 MT during the month. The total cement production during April-September 2010-11 reached 81.54 MT as compared to 77.22 MT over the corresponding period last fiscal year. Moreover, the government's continued thrust on infrastructure will help the key building material to maintain an

annual growth of 9-10 per cent in 2010. In January 2010, the country will add about 50 million tonne cement capacity in 2010, taking the total to around 300 million tonne.Cement and gypsum products have received cumulative FDI of US$ 1,971.79 million between April 2000 and September 2010. The cement industry is likely to maintain its growth momentum and continue growing at around 8% to 9% in the medium to long term. Government initiatives in the infrastructure sector and the housing sector are likely to be the main growth drivers.

BK Birla Group outfit, Kesoram Industries, is setting up a 2,000-tonne a day packaging unit in Medak district of Andhra Pradesh at a cost of US$ 1.76 million.

Birla Corporation, Flagship Company of the M. P. Birla Group, is planning to set up a 1 MT cement plant in Assam at an investment of around Rs.450 crore (US$ 99 million). The company has signed a memorandum of understanding (MoU) with the Assam Mineral Development Corporation to this effect.

To cater to the growing demands, Everest Industries is planning to set up a new manufacturing facility in East India. The company is looking at acquiring about 22 acres for the facility that will start with the production of roofing materials and other products will be rolled out in a phased manner. Besides, the company is likely to consider setting up a new factory for the fibre cement boards as it is at present utilising almost 100 per cent of its 90,000 tonne of installed capacity across different plants.

Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand. Holcim is present in the country through ACC and Ambuja Cements and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India. The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement.

Peer Group Comparision:-

Peer groups have been selected basis of almost same market capitalisation, market share, sales voloum and common business.

ACC AMBUJA ULTRATECHDec-10 Dec-10 Mar-10

Income 77173.3 73764.4 70496.8Income Growth -3.86 4.4EBIDTA 18120 18236 19711EBIDTA Margin (%) 18.15 22.36 25.5PAT 11200.1 12636.1 10932.4PAT Margin (%) 13.08 15.25 14.14EPS 59.65 8.26 87.82P/E (x) 18.03 17.32 13.17RONW (%) 17.67 17.2 26.62ROCE (%) 25 24.39 28.53ROE (%) 17.94 18.32 26.64P/BV (x) 3.12 2.99 3.12

Table:-6

FY10 FY09 FY080

2000

4000

6000

8000

10000

OP-ERAT-

ING IN-

COME

EBITDA

Comparision of Operating income and EBITDA

OPERATING INCOME

EBITDA

Sep ' 10 Jun ' 10 Mar ' 10 Dec ' 09 Sep ' 09 Jun ' 09 Mar ' 09 Dec ' 08 Sep ' 080

10

20

30

40

50

60

13.1

28.82 30.7424.85

35.1 36.4332.37

25.53 26.24

5.82

17.2518.73

14

21.5622.71

19.22

14.56 15.15

Movement of OPM & NPM Quartely

NPM(%)

OPM(%)

FY10FY09FY08FY0701000200030004000500060007000

05

10152025303540

Graph of PAT Networth with RONW

PAT (cr)NETWORTH (cr)RONW (%)

FY10FY09FY08FY070102030405060708090

00.5

11.5

22.5

33.5

44.5

59.66

85.6

64.3

76.75

30.5232020

33

4

2

Comparison of EPS,DPS and Yield Ratio(%)

EPS (Rs)

DPS (Rs)

DIVIDEND YIELD RATIO (%)

FY10FY09FY08FY0702000400060008000100001200014000160001800020000

0

2

4

6

8

10

12

Comparision of EV, EBITDA and EV/EBITDA

EV

EBITDA

EV/EBITDA

FY10FY09FY08FY07FY061717.51818.51919.52020.52121.522

-2

-1

0

1

2

3

4

5

6

721.1721.36

20.3919.88

18.71

-0.889513108614221

4.757233938205

2.56539235412476

6.25334045964724

0

Graph of Despatch Quantity and Growth rate

DESPATCH (MT)

GROWTH

FY10

FY09

FY08

0 1000 2000 3000 4000 5000 6000 7000 8000

6469

6016

4928

7355

6932

5746

Comparision of Networth and Capital Employeed

CAPITAL EMPLOYEED

NETWORTH

FY10 FY09 FY080

500

1000

1500

2000

2500

3000

0

5

10

15

20

25

30

35

Comparision of EBITDA and EBITDA Margin

EBITDA

EBITDA MARGIN

FY10FY09FY08FY070102030405060708090

0

10

20

30

40

50

60

Comparision of EPS, DPS and Payout Ratio

EPS (Rs)

DPS (Rs)

DIVIDEND PAY OUT RATIO

FY10

FY09

FY08

02000400060008000

10000

0

5

10

15

20

Graph od OP income, PAT and PAT Margin

OPERATING INCOME

PAT

PAT MARGIN

FY10 FY09 FY080

500

1000

1500

2000

2500

0

5

10

15

20

25

30

Comparision of EBT and EBT Margin

EBT

EBT MARGIN

Sep ' 10 Jun ' 10 Mar ' 10 Dec ' 09 Sep ' 09 Jun ' 09 Mar ' 09 Dec ' 08 Sep ' 080

500

1000

1500

2000

2500

1688.48

2062.16 2136.281983.87 2005.47 2119.86 2081.7 2069.52

1852.56

Quarterly sales

Sales

Sep ' 10

Jun ' 10

Mar ' 10

Dec ' 09

Sep ' 09

Jun ' 09

Mar ' 09

Dec ' 08

Sep ' 08

050

100150200250300350400450500

100.05

358.93405.13

280.72

435.63485.62

404.76

300.39 283.44

Quarterly net profit

Net Profit / Loss

Sep ' 10 Jun ' 10 Mar ' 10 Dec ' 09 Sep ' 09 Jun ' 09 Mar ' 09 Dec ' 08 Sep ' 080

5

10

15

20

25

30

5.32

19.121.56

14.94

23.1825.85

21.54

15.99 15.09

Quarterly EPS

EPS (in Rs.)

FY10

FY09

FY08

0 500 1000 1500 2000 2500

Comparison of EBT & PAT

PAT

EBT

VALUATION:- (All Figure in Millions)

Parameter FY2009 FY2010 FY2011(E)Sales 80272 77173 86861.7Sales Growth (%) -3.9 12.6Total Expenses 55468.4 61633.5 66014.9Operating Profit 24829 15924 20846.8OPG (%) -35.9 30.9EBIT 23787 15182 18316.3EBIT Growth (%) -36.17522 20.6Interest 843 568 823.8PBT befor ex item 22944 14614 17492.5Tax 6877 3414 4897.9EX Income/loss 0 0 0Profit After Tax 16067 11200 12594.58Adjusted Net Profit 16067 11200 12594.58Growth -30.3 12.5EPS( RS) 85.5 59.6 66.8EPS Growth Rate(%) -30.3 12.1

Parameter FY2009 FY2010 FY2011(E)Equity 1880 1880 1880Reserve & Surplus 58283 62815 69272Share Holder Fund's 60163 64695 71152Total Debt 5669 5238 5078Total Capital Employeed 65832 69933 76230Net Fixed Assset 63145 66452 64633Cash 18759 23874 34485Net other Current Asset -16041 -20731 -23803Investment 3462 3615 4680Net Deferred Tax Asset -3493 3615 -3765Total Asset 65832 69933 76230

Parameter FY2009 FY2010 FY2011(E)Debt/Equity 0.09 0.08 0.07

ROE 26.7% 17.3% 17.7%

ROCE 36.1% 21.7% 24.03%P/E (x) 13.1 18.8 15.6BV/Share 320.0 344.1 378.5EV?EBIT (x) 6.8 12.9 8.6EV/EBITDA(x) 7.5 10.4 7.6

EV/Sales(x) 2.5 2.05 1.8

OPM(%) 32.3 2.2 24

NPM(%) 20 14.5 14.7

DPS 13 13 13

P/E (x) 13.1 18.8 15.1

Price/Book Value 2.72 3.12 2.7

Conclusion:-

ACC Q1FY2011 result was as expectation and realization also increased. Cement price has been increased in the month of Feb-March this year. This would be considering that ACC capacity would rise up-to 3 million tonnes. But it is expecting that margin pressure will be there in future. At present ACC Stock trading at on EV/EBITDA(x) of 7.6x and EV/EBIT of 8.6x as based on estimation. We are expecting Q2FY2011 EPS will be RS 19.1.