'Hold' rating for ACC shares, Lagging further behind: Jefferies

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SummaryCompany unable to manage costs; profitability continues to lag larger cement players.

The ACC's Q4CY13 Ebitda (earnings before interest, taxes, depreciation and amortisation) was in line, while PAT (profit after tax) benefited from tax provision writeback. Employee costs were lower due to one-time actuarial gains, while freight and other overheads were higher than expectations. Ebitda/tonne declined 16% y-o-y (year on year) to Rs 449 as realisation was flat y-o-y, while operating cost per tonne was up 3% y-o-y. ACC has not been able to manage costs and its profitability continues to lag larger cement players. Downgrade to Hold with revised TP (target price) of RS 1,130.

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. ACC’s 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

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