We maintain our ‘sell’ rating on ACC with a revised target price of R1,250 (earlier R1,200) based on March 2016e valuations. We have marginally revised our earning estimates for FY15e/16e by 1-2% taking cognisance of the results reported for the quarter.
Contrary to Street expectations, CY2014E will likely be another year of unexciting earnings for ACC — H1CY14 has seen earnings decline of 10% year-to-date, with the monsoon quarter offering little hope for revival. Our earnings assumptions build on an optimistic revival over the next two years, despite which earning multiples are rich at 12x EV/ebitda making it difficult for us to turn constructive on these names.
ACC reported net sales of R3,000 crore (8% y-o-y, 1% q-o-q), operating profit of R400 crore (-8% y-o-y, 9% q-o-q) and net income of R240 crore (-7% y-o-y, -7% q-o-q) against our estimates of R3,090 crore, R440 crore and R280 crore, respectively. While the volumes and realisations were in line with our expectations, the company’s profitability at R620 per tonne (-13% y-o-y, 11% q-o-q) was lower than our estimate of R681 per tonne. Cement sales of 6.35 million tonnes (4% y-o-y, -2% q-o-q) during the quarter were in line with our expectations.
With the 10% decline in net income in the first half, ACC could at best end 2014e with a 6% growth in net income. Lower profitability in the quarter at R620 per tonne was on account of higher cost even as volumes and realisations missed estimates by a modest 2% each.
Kotak Institutional Equities