ACC posted decade-low Q2 margins, as pricing fails to show resilience amidst continued weakness in demand. Volume de-grew 2.4% y-o-y at 6.2mt, while realisations were down at Rs 4,385/tonne. Revenue stood in line at Rs 2,960 crore (+1.6% y-o-y), while ebitda de-grew 30% y-o-y to Rs 270 crore, translating into margins of 9.4% versus estimate of 9.9%. Reported PAT stood at Rs 130 crore, lower due to q-o-q decline in other income and higher tax.
Cost/tonne was up 1.8% q-o-q (+5.3% y-o-y) versus estimate of +0.6% q-o-q. It was led by (a) Raw material and freight cost , (b) reversal packaging cost, (c) higher employee cost, and (d) fuel mix change negating the benefits of savings in energy cost led by better efficiencies, higher usage of alternate fuel and waste heat recovery. With mining operations resuming at Bargarh, there would be moderation in raw material and freight cost in east operations here on.
We cut our CY15/16 EPS by 2-4% to factor in marginally higher cost, lower other income and higher tax. While ACC should underperform peers on volume growth, its strong price sensitivity may boost profitability once demand recovery cycle kicks in. The stock trades at an EV of 18.8x/11.4x CY15e/CY16e ebitda and $122/tonne (~35% discount to large cap average). We expect possible time correction in immediate horizon. Maintain ‘buy’ with target price of R1,672 .