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Lower ACC shares to ‘hold’ as company lags industry: Jefferies

Feb 08 2014, 13:58 IST
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ACC's net revenues for the December quarter came in at Rs 2,690 crore. ACC's net revenues for the December quarter came in at Rs 2,690 crore.
SummaryWe downgrade ACC to ‘hold’ from ‘buy’ with a revised price target of R1,130 (earlier R1,336) based on $102 EV/tonne valuation

We downgrade ACC Ltd to ‘hold’ from ‘buy’ with a revised price target of R1,130 (earlier R1,336) 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 justified, given its lower-than-industry average profitability.

ACC reported results with revenue and Ebitda coming in line with our estimates, but consolidated PAT came in 94% above our estimates at Rs 280 crore (+10% y-o-y, +132% q-o-q) due to higher other income and reversal of tax provision of R75.9 crore during the quarter.

Recurring PAT was 40% ahead of expectations.

Net revenues for the quarter came in at Rs 2,690 crore, which included Rs 140 crore of revenues from the RMC division. Cement revenues were R2,550 crore (-2% y-o-y, +8% q-o-q), which was in line with expectations as both volumes (5.9 million tonne, -2% y-o-y, +6% q-o-q) and realisation (R4,364 per 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 Ambuja Cements and Ultratech, given its higher exposure to the south India region, which saw a q-o-q price increase.

- Jefferies

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