In-line operating results; recurring PAT down 20% y-o-y: As reported results with revenue and Ebitda coming in line with our estimates, but consolidated PAT came in 94% above our estimates at RS 2.8 bn (+10% y-o-y, +132% q-o-q) due to: (i) higher other income; and (ii) reversal of tax provision of R759 m during the quarter. Recurring PAT was 40% ahead of expectations. Ebitda for Q4CY13 was R2.6 bn (-17% y-o-y, +17% q-o-q) and Ebitda margin for the quarter was 9.8% as against 11.7% in Q4CY12 and 9% in Q3CY13. Employee costs were lower q-o-q on the back of one-time actuarial gains realised during the quarter, while freight and other overheads were higher than expectations. Recurring EPS (earnings per share) for Q4CY13 was R10.6 versus R13.4 in Q4CY12 and was R46.3 for CY13.
Volumes decline 2% y-o-y while realisation increases 2% q-o-q: Net revenues for the quarter came in at R26.9 bn, which included R1.4 bn of revenues from the RMC division. Cement revenues were R25.5 bn (-2% y-o-y, +8% q-o-q), which was in line with expectations as both volumes (5.9 m tonnes, -2% y-o-y, +6% q-o-q) and realisation (R4,364/tonne, flat y-o-y, +2% q-o-q) were in line with expectations. ACCs 2% q-o-q realisation improvement is better than that for ACEM and Ultratech, given its higher exposure to the southern region, which saw a price increase q-o-q.
Ebitda of R449/tonne; in line with expectation: Power and fuel costs per tonne at R999 decreased 1% q-o-q on account of the rupee appreciation and fewer shutdowns after the monsoon. Freight costs increased 12% y-o-y and also 14% q-o-q to R1,041/tonne on account of the 15% (12% last year) peak season surcharge announced by the railways applicable from October 1, 2013, to June 30, 2014.
Other expenses increased 9% y-o-y and 5% q-o-q on a per tonne basis. We expect the bulk of the y-o-y increase to be on account of the new technical and services fee agreement becoming effective from January 2013.
Valuation and risks
We downgrade the stock to Hold with a revised target price of R1,130 (R1,336 earlier) based on $102 EV/tonne valuation (15% discount to the $120/ tonne replacement cost). Historically, at the mid-point of the industry cycle, the stock has traded at a 1% premium to replacement cost, but we believe a 15% discount is currently justified, given its lower than industry average profitability. Key downside risks are negative surprises in cement prices and cement volumes.