22 april 2020 results review 1qcy20 acc

22 April 2020 Results Review 1QCY20

ACC

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Healthy margins despite weak volumes

During 1QCY20, while ACC’s cement volume/consol revenue fell 12/11% YoY

on Covid-19 lockdown, lower op costs more than offset this impact. Thus,

consol EBITDA/APAT rose 10/31% YoY. We expect the Covid-19 impact to

pull down CY20E volumes by 18% YoY. However, we expect falling energy

costs to moderate the earnings impact. We maintain BUY on the stock with a

TP of Rs 1,440 (10x consolidated Mar’22E EBITDA)

Sharp vol decline pulled down revenues: ACC reported consol rev decline

of 11% YoY to Rs 35.02bn. However, EBITDA/PAT grew 10/ 31% YoY resp to

Rs 5.87/3.23bn resp. ACC’s EBITDA/APAT came in 7/9% higher vs our est.

Cement Sales vol declined 12% YoY to 6.6mn MT, mainly led by Covid-19

shutdowns. NSR remained flat YoY (+1% QoQ) at Rs 4,807/MT. Even RMC

revenues (11% of total revenues) fell 1% YoY in 1Q.

Lower opex buoyed margin to multi-year high level of Rs 831/MT: Amid

flattish NSR, ACC’s unitary opex fell 5/5% YoY/QoQ to Rs 3,975/MT. This is

led by lower fuel costs, increase in premium cement sales and cost controls.

However, owing to lower sales YoY/QoQ, negative op-lev drove fixed costs

higher by 5/7% YoY and moderated the benefits. Opex reduction bolstered

unitary EBITDA by 27/38% YoY/QoQ to Rs 831/MT (ACC’s 8-yr high

performance for a Mar-qtr)! ACC adopted new financial lease accounting

w.e.f. Jan 2020. This led to lower other expenses by Rs 88.5mn (Rs 13/MT)

and Depreciation/Interest expense higher by Rs 72/26.4mn respectively.

EBITDA/APAT up 10/30% YoY on strong margin and lower tax rate:

Despite volume decline, strong margin buoyed consol EBITDA/APAT by

10/31% YoY. Eff tax rate of 32% in 1QCY20 vs 42/32% YoY/QoQ further

boosted PAT growth.

Valuation and view. We expect the Covid-19 lockdown to adversely impact

cement demand in CY20, pulling down ACC’s CY20 vol by 18% YoY. We

estimate ACC’s volume in 2QCY20 to fall 50% YoY, owing to extended

lockdown impact during the qtr. Thereafter, we expect demand pick up and

ACC’s capacity expansions (6mn MT additions expected by early CY22E) to

drive 14% volume CAGR during CY20-22E. Falling energy costs should

moderate the impact of weak demand in CY20. Thus, we model in unitary

EBITDA to sustain around ~Rs 750 during CY20-22E. We maintain BUY on

the stock, valuing it at 10x its Mar’22E EBITDA. Our TP implies replacement

EV/MT of Rs 6.9bn (similar to its 10-yr historical mean).

Financial Summary

YE Dec (Rs mn) 1Q

CY20

1Q

CY19 YoY (%)

4Q

CY19 QoQ (%) CY19 CY20E CY21E CY22E

Net Sales 35,017 39,191 (10.7) 40,603 (13.8) 156,576 128,116 147,294 172,779

EBITDA 5,865 5,317 10.3 5,410 8.4 24,105 18,051 22,228 24,890

APAT 3,230 2,473 30.6 2,733 18.2 12,767 9,849 12,960 14,174

AEPS (Rs) 17.2 13.2 30.6 14.5 18.2 68.0 52.4 69.0 75.5

EV /EBITDA (x)

10.0 9.5 7.8 6.7

EV/MT (Rs bn)

7.57 5.40 5.46 4.44

P/E (x)

26.3 22.5 21.7 16.5

RoE (%)

11.0 11.6 8.4 10.6

Source: Company, HSIE Research

BUY

CMP (as on 21 Apr 2020) Rs 1,137

Target Price Rs 1,440

NIFTY 8,981

KEY

CHANGES OLD NEW

Rating Buy Buy

Price Target Rs 1,140 Rs 1,440

EPS % CY20 CY21E

- -

KEY STOCK DATA

Bloomberg code ACC IN

No. of Shares (mn) 188

MCap (Rs bn) / ($ mn) 214/2,774

6m avg traded value (Rs mn) 1,205

52 Week high / low Rs 1,769/895

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (24.0) (26.8) (33.1)

Relative (%) 1.8 (4.8) (11.4)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 54.53 54.53

FIs & Local MFs 21.22 21.03

FPIs 8.60 7.79

Public & Others 15.65 16.65

Pledged Shares 0.00 0.00

Source : BSE

Rajesh Ravi

[email protected]

+91-22-6171-7352

Saurabh Dugar

[email protected]

+91-22-6171-7353

Page | 2

ACC: Results Review 1QCY20

Quarterly consolidated Financial Snapshot

Particulars (Rs mn) 1QCY20 1QCY19 YoY (%) 4QCY19 QoQ (%)

Net Sales 35,017 39,191 (10.7) 40,603 (13.8)

Raw Materials 9,202 12,723 (27.7) 14,572 (36.9)

Power and Fuel 7,344 7,921 (7.3) 7,409 (0.9)

Employee 2,090 2,001 4.5 2,330 (10.3)

Transport 9,415 10,569 (10.9) 9,844 (4.4)

Other Exp 5,549 6,269 (11.5) 6,096 (9.0)

EBITDA 5,865 5,317 10.3 5,410 8.4

EBITDA margin (%) 16.7 13.6 318 13.3 343

Depreciation 1,580 1,476 7.0 1,608 (1.8)

EBIT 4,285 3,841 11.6 3,802 12.7

Other Income (Including EO Items) 559 1,566 (64.3) 575 (2.8)

Interest Cost 106 201 (47.2) 293 (63.8)

PBT - Reported 4,739 5,207 (9.0) 4,084 16.0

Tax 1,531 1,771 (13.6) 1,400 9.3

Tax rate (%) 32.3 34.0 (171) 34.3 (198)

(Min Int)/ Share of associates profit 22 32 49

RPAT 3,230 3,468 (6.9) 2,733 18.2

EO (Loss) / Profit (Net Of Tax) - 995 -

APAT 3,230 2,473 30.6 2,733 18.2

Adj PAT margin (%) 9.2 6.3 291 6.7 249


Quarterly Performance Analysis: Cement

Particulars (% of Revenue) 1QCY20 1QCY19 YoY (%) 4QCY19 QoQ (%)

Sales vol (mn MT) 6.6 7.5 (11.9) 7.8 (15.5)

Rs/MT trend

NSR 4,807 4,815 (0.2) 4,774 0.7

Raw materials 256 570 (55.0) 862 (70.3)

Power & fuel 1,119 1,063 5.3 955 17.3

Employee 319 269 18.6 300 6.1

Freight (inward +outward) 1,435 1,419 1.2 1,269 13.1

Other Exp 846 841 0.5 786 7.7

Opex 3,975 4,162 (4.5) 4,171 (4.7)

EBITDA 831 653 27.3 603 37.8


Revenue declined 11% due

to 12% fall in cement sales

vol

Amid flat NSR, opex fell

5/5% YoY/QoQ led by

lower fuel cost, in premium

cement sales and cost

controls

Lower opex boosted

unitary EBITDA by 27/38%

YoY/QoQ to Rs 831/MT.

Higher margin more than

offset lower volumes and

EBITDA rose 10% YoY.

Lower eff tax rate of 32%

vs 42% YoY further

boosted APAT growth to

31% YoY.

There is also impact of

ACC adopting new finance

lease accounting wef Jan

2020, which led to lower

other expenses by Rs

88.5mn (Rs 13/MT) and

Dep/Int rising by Rs

72/26.4mn resp.

nasir.sheikh

Highlight

nasir.sheikh

Highlight

nasir.sheikh

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Operational Trends and Assumptions – Cement business

Particulars CY16 CY17 CY18 CY19 CY20E CY21E CY22E

Cement Cap (mn MT) 31.8 31.8 31.8 31.8 31.8 31.8 31.8

Sales Volume (mn MT) 23.0 26.2 28.4 28.9 23.6 26.7 23.0

YoY change (%) (2.7) 14.0 8.3 1.7 (18.2) 13.0 (2.7)

Utilisation (%) 72.3 82.5 89.3 90.8 74.3 84.0 72.3

(Rs/ MT trend)

NSR (1) 4,430 4,623 4,749 4,907 4,889 4,975 4,430

YoY change (%) (4.0) 4.4 2.7 3.3 (0.3) 1.7 (4.0)

Raw material cost 379 351 406 481 474 509 379

Power and fuel cost 939 1,036 1,057 1,085 1,031 1,041 939

Transport cost (in + out) 1,147 1,310 1,406 1,396 1,368 1,368 1,147

Employee cost 329 313 286 300 369 359 329

Other expenses 1,025 929 896 864 921 917 1,025

Total Opex 3,819 3,951 4,051 4,125 4,163 4,194 3,819

YoY change (%) (5.6) 3.5 2.5 1.8 0.9 0.7 (5.6)

EBITDA per MT 611 672 698 781 727 781 611

YoY change (%) 7.4 10.0 3.9 12.0 (7.0) 7.5 7.4


Page | 4


Long term op performance trends (TTM basis)

We have plotted ACC’s operating metrics on trailing 12-month (TTM) basis,

to assess its long term performance trends

Demand disruption in peak month of Mar-20 steepened

volume decline…

… and kept NSR growth trend muted



Opex continues to moderate thus boosting margin

expansion

Moderation in fuel and diesel prices cooled off cost

inflation, even fixed costs remained stable

Source: Company, HSIE Research Source: Company, HSIE Research

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Long term performance trends (TTM basis) continued

ACC’s op margin continues to firm up and are

currently at multi year high levels

ACC’s EBITDA and PAT margins expanded further to

their highest levels in last seven years!

Source: Company, HSIE Research Source: Company, HSIE Research

Peer Set Comparison

Company Mcap

(Rs bn)

CMP

(Rs/sh) Reco TP

EV/EBITDA EV/MT (Rs bn) Net D:E (x) RoE (%)

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

UltraTech Cement 935 3,403 BUY 4,850 12.2 13.2 10.8 10.07 9.59 8.95 0.5 0.4 0.2 10.7 8.3 10.2

Shree Cement 656 18,828 REDUCE 17,900 17.9 19.5 16.3 14.23 13.09 12.72 (0.3) (0.3) (0.3) 12.4 7.6 9.6

Ambuja Cements 333 168 BUY 210 7.8 8.8 7.4 5.69 5.38 5.37 (0.7) (0.7) (0.7) 6.8 5.3 6.0

ACC 213 1,137 BUY 1,440 6.9 9.5 7.8 5.25 5.40 5.46 (0.4) (0.4) (0.3) 11.6 8.4 10.6

Ramco Cements 130 550 BUY 670 13.4 13.6 10.1 8.13 7.80 7.03 0.4 0.4 0.3 12.1 10.5 12.7

Dalmia Bharat 103 534 BUY 930 7.0 9.0 6.9 5.41 4.64 3.92 0.4 0.4 0.4 2.0 (1.2) 0.5

JK Cement 88 1,137 BUY 1,355 10.1 10.4 9.5 6.89 6.96 7.36 0.9 0.9 1.0 14.9 11.8 13.9

Star Cement 30.6 73 BUY 100 7.3 7.8 6.8 5.04 5.34 5.67 (0.1) (0.0) 0.1 15.7 13.5 16.1

JK Lakshmi 23.9 203 BUY 370 5.3 6.6 5.6 2.95 3.09 2.72 0.6 0.7 0.6 13.8 9.3 11.4

Orient Cement 9.0 44 BUY 85 6.6 6.8 6.1 2.66 2.73 3.10 1.1 1.2 1.3 4.7 4.6 12.3

Deccan Cements 2.86 204 BUY 370 3.4 3.1 3.5 1.16 1.05 1.67 (0.1) (0.1) 0.2 9.9 7.9 11.8

Source: Company, HSIE Research, For ACC and Ambuja, the financial year is CY18/ CY19/CY20E/CY21E resp

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Financials Consolidated Income Statement YE Dec (Rs mn) CY17 CY18 CY19 CY20E CY21E CY22E

Revenues 132,851 148,016 156,576 128,116 147,294 172,779

Growth % 20.8 11.4 5.8 (18.2) 15.0 17.3

Raw Material 19,659 23,325 27,189 22,926 26,713 31,670

Power & Fuel 27,169 30,008 31,340 24,347 27,787 32,914

Freight Expense 34,338 39,928 40,321 32,313 36,514 43,671

Employee cost 8,214 8,132 8,661 8,708 9,579 11,016

Other Expenses 24,689 25,438 24,960 21,770 24,474 28,618

EBITDA 18,783 21,185 24,105 18,051 22,228 24,890

EBIDTA Margin (%) 14.1 14.3 15.4 14.1 15.1 14.4

EBITDA Growth % 27.1 12.8 13.8 (25.1) 23.1 12.0

Depreciation 6,436 6,032 6,064 6,464 6,732 8,038

EBIT 12,347 15,153 18,040 11,587 15,496 16,852

Other Income (Including EO Items) 1,631 5,729 3,184 2,190 2,408 2,649

Interest 985 878 855 855 855 855

PBT 12,992 20,004 20,370 12,922 17,050 18,646

Tax 3,856 4,901 6,750 3,231 4,262 4,662

Minority Int (109) (103) (142) (157) (173) (190)

RPAT 9,246 15,206 13,761 9,849 12,960 14,174

EO (Loss) / Profit (Net Of Tax) 342 4,303 995 - - -

APAT 8,904 10,904 12,767 9,849 12,960 14,174

APAT Growth (%) 27.7 22.5 17.1 (22.9) 31.6 9.4


Consolidated Balance Sheet

YE Dec (Rs mn) CY17 CY18 CY19 CY20E CY21E CY22E

SOURCES OF FUNDS

Share Capital 1,880 1,880 1,880 1,880 1,880 1,880

Reserves And Surplus 91,679 103,440 113,558 116,816 123,185 130,768

Total Equity 93,559 105,319 115,438 118,695 125,065 132,648

Minority Interest 29 30 32 32 32 32

Long-term Debt - - - - - -

Short-term Debt - - - - - -

Total Debt - - - - - -

Deferred Tax Liability 5,516 6,745 6,557 6,557 6,557 6,557

Long-term Liab+ Provisions 1,428 1,403 2,351 2,351 2,351 2,351

TOTAL SOURCES OF FUNDS 100,531 113,498 124,378 127,635 134,004 141,588

APPLICATION OF FUNDS

Net Block 72,645 70,726 70,112 67,648 64,916 91,878

Capital WIP 2,693 3,978 4,457 16,457 28,457 3,457

Goodwill 156 156 156 156 156 156

Other Non-current Assets 15,597 17,930 20,233 18,291 18,922 19,868

Total Non-current Investments 949 1,041 1,162 1,162 1,162 1,162

Total Non-current Assets 92,039 93,831 96,119 103,713 113,612 116,520

Inventories 14,048 16,794 11,419 14,040 16,142 18,935

Debtors 6,660 8,674 6,267 7,371 8,474 9,467

Cash and Cash Equivalents 27,286 30,970 46,477 41,635 39,779 46,182

Other Current Assets 8,425 10,292 11,078 11,629 11,786 12,375

Total Current Assets 56,418 66,729 75,241 74,675 76,181 86,960

Creditors 18,137 19,263 14,750 14,040 16,142 18,935

Other Current Liabilities & Provns 29,789 27,799 32,233 36,713 39,647 42,958

Total Current Liabilities 47,927 47,062 46,982 50,753 55,789 61,892

Net Current Assets 8,492 19,667 28,259 23,922 20,392 25,067

TOTAL APPLICATION OF FUNDS 100,531 113,498 124,378 127,635 134,004 141,588


Page | 7


Consolidated Cash Flow YE Dec (Rs mn) CY17 CY18 CY19 CY20E CY21E CY22E

Reported PBT 13,101 15,101 20,525 12,922 17,050 18,646

Non-operating & EO Items (1,879) (1,650) (3,133) (2,032) (2,236) (2,460)

Interest Expenses 985 878 863 855 855 855

Depreciation 6,436 6,032 6,064 6,464 6,732 8,038

Working Capital Change (907) (3,906) 2,699 1,436 1,043 782

Tax Paid (2,191) (5,279) (4,471) (3,231) (4,262) (4,662)

OPERATING CASH FLOW ( a ) 15,545 11,175 22,547 16,414 19,182 21,200

Capex (5,204) (4,971) (4,949) (16,000) (16,000) (10,000)

Free Cash Flow (FCF) 10,340 6,204 17,598 414 3,182 11,200

Investments 664 396 (57) - - -

Non-operating Income 744 931 1,789 2,190 2,408 2,649

Others

INVESTING CASH FLOW ( b ) (3,796) (3,644) (3,217) (13,811) (13,592) (7,351)

Debt Issuance/(Repaid) - - - - - -

Interest Expenses (416) (409) (572) (855) (855) (855)

FCFE 9,925 5,796 17,026 (441) 2,327 10,345

Share Capital Issuance - - - - - -

Dividend (3,842) (3,396) (3,169) (6,591) (6,591) (6,591)

FINANCING CASH FLOW ( c ) (4,258) (3,805) (3,742) (7,446) (7,446) (7,446)

NET CASH FLOW (a+b+c) 7,491 3,726 15,589 (4,843) (1,856) 6,403

EO Items, Others

Closing Cash & Equivalents 27,263 31,012 46,559 41,635 39,779 46,182

Key Ratios

CY17 CY18 CY19 CY20E CY21E CY22E

PROFITABILITY (%)

EBITDA Margin 14.1 14.3 15.4 14.1 15.1 14.4

EBIT Margin 9.3 10.2 11.5 9.0 10.5 9.8

APAT Margin 6.7 7.4 8.2 7.7 8.8 8.2

RoE 9.8 11.0 11.6 8.4 10.6 11.0

RoIC 11.8 14.7 15.0 10.6 12.9 13.3

RoCE 9.9 11.7 11.4 8.2 10.3 10.6

EFFICIENCY

Tax Rate % 29.7 24.5 33.1 25.0 25.0 25.0

Fixed Asset Turnover (x) 1.6 1.7 1.7 1.3 1.5 1.4

Inventory (days) 39 41 27 40 40 40

Debtors (days) 18 21 15 21 21 20

Other Current Assets (days) 23 25 26 33 29 26

Payables (days) 50 48 34 40 40 40

Other Current Liab & Provns (days) 82 69 75 105 98 91

Cash Conversion Cycle (days) (52) (28) (42) (50) (48) (45)

Net Debt/EBITDA (x) (1.5) (1.5) (1.9) (2.3) (1.8) (1.9)

Net D/E (0.3) (0.3) (0.4) (0.4) (0.3) (0.3)

Interest Coverage 12.5 17.3 21.1 13.6 18.1 19.7

PER SHARE DATA (Rs)

EPS 47.4 58.1 68.0 52.4 69.0 75.5

CEPS 81.7 90.2 100.3 86.9 104.9 118.3

Dividend 26.0 29.0 28.0 30.0 30.0 30.0

Book Value 498.4 561.0 614.9 632.2 666.2 706.5

VALUATION

P/E (x) 32.3 26.3 22.5 21.7 16.5 15.1

P/Cash EPS (x) 18.3 13.5 14.5 13.1 10.8 9.6

P/BV (x) 3.1 2.7 2.5 1.8 1.7 1.6

EV/EBITDA (x) 13.8 12.1 10.0 9.5 7.8 6.7

EV/MT (Rs bn) 8.18 8.06 7.57 5.40 5.46 4.44

Dividend Yield (%) 2.3 2.6 2.5 2.6 2.6 2.6

OCF/EV (%) 6.0 4.4 9.4 9.6 11.0 12.7

FCFF/EV (%) 4.0 2.4 7.3 0.2 1.8 6.7


Page | 8


Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

Date CMP Reco Target

10-Apr-19 1,654 BUY 1,910

24-Apr-19 1,658 BUY 1,900

10-Jul-19 1,554 BUY 1,900

19-Jul-19 1,567 BUY 1,930

22-Sep-19 1,634 BUY 1,940

10-Oct-19 1,467 BUY 1,940

16-Oct-19 1,498 BUY 1,940

10-Jan-20 1,486 BUY 1,940

9-Feb-20 1,503 BUY 1,780

2-Mar-20 1,321 BUY 1,680

5-Mar-20 1,326 BUY 1,680

17-Apr-20 1,148 BUY 1,440

22-Apr-20 1,137 BUY 1,440

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

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Disclosure:

We, Rajesh Ravi, MBA & Saurabh Dugar, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research

report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this

report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this

report.

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conflict of interest.

Any holding in stock –No

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