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April 24, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Operationally good performance…
ACC’s Q1CY17 numbers were above our estimates due to a higher-
than-expected topline. The beat on the topline was led by 3.8% YoY
increase in volumes to 6.6 MT, which came in as a positive surprise
against 15.0% YoY decline in pan-India production volumes in the
first two months of CY17 as per core industry data
Revenues increased 7.9% YoY to | 3,099.7 crore (above I-direct
estimate of | 2,631.7 crore) led by 3.8% YoY increase in volumes to
6.6 MT (above I-direct estimate of 5.6 MT) due to commissioning of
the Jamul plant and 4.0% YoY increase in realisation to | 4,696/tonne
(vs. I-direct estimate of | 4,718/tonne)
EBITDA margin declined 213 bps YoY to 11.0% (vs. I-direct estimate
of 7.2%) due to higher freight (up 13.4% YoY) and power & fuel cost
(up 14.1% YoY). EBITDA/tonne declined 12.8% YoY to | 519/t (better
than our estimate of | 338/t due to operating leverage benefit)
Expansion in east, improving government demand to boost growth
Over the past few years, ACC has reported subdued volume growth
(1.3% CAGR in CY10-16) led by a poor macro environment and absence
of new capacity addition. However, going forward, we expect cement
demand to improve on the back of higher infra spend by the government
especially in roads and housing. Consequently, cement demand is
expected to reach 323 MT by FY19E (i.e. at 7.0% CAGR) vs. (5.4% CAGR
in last five years). Apart from improving macro demand, the company’s
expansion in the eastern region by ~5 MT is expected to drive volumes
over the next few years (13.7% CAGR in CY16-18E).
ACC acquisition by Ambuja to drive cost synergies…
The acquisition of ACC by Ambuja is expected to reduce cost through
consolidation of shared services (like finance, HR and marketing) vendor
consolidation and swapping of plants (to reduce lead distance). The
proposed restructuring is expected to result in synergy benefits of ~| 900
crore resulting in long term benefits for ACC and Ambuja. We expect the
benefits of synergies to start flowing in from CY17E.
…cost rationalisation to further improve margins
ACC has one of the oldest manufacturing plants in the industry, resulting
in higher operating costs for the company. However, ACC is taking steps
to rationalise cost by increasing usage of low cost fuels. Similarly, usage
of alternative fuel is expected to rise from the current 3% to 5% over the
next 12 months. The company is also focusing on increasing the volume
of premium products and higher ex factory sales to reduce lead distance,
resulting in higher margins.
Improving fundamentals; maintain BUY
Cement demand is expected to improve over the next few years led by a
revival in the rural economy and increased infrastructure spends by the
government. Apart from improving macro, capacity expansion of 5 MT
(i.e. 16% of capacity) is expected to result in 13.7% CAGR in revenues in
CY16-18E. Further, cost control initiatives such as use of alternative fuels,
better sales mix and reduction of employees is expected to help ACC in
margin expansion, going forward. We expect the OPM to improve from
11.0% to 13.9%in CY18E. Further, ACC is trading at an EV/tonne of $130,
far below the replacement cost of $150.Hence, we maintain our BUY
rating with a revised target price of | 1,850/share (i.e. valuing the stock at
CY18E EV/tonne of $150/tonne on CY18E capacity of 35 MT).
Rating matrix
Rating : Buy
Target : | 1850
Target Period : 12-15 months
Potential Upside : 18%
What’s Changed?
Target Changed from | 1680 to | 1850
EPS CY17E Changed from | 61.2 to | 63.7
EPS CY18E Changed from | 65.2 to | 67.5
Rating Unchanged
Quarterly Performance
Q1CY17 Q1CY16 YoY (%) Q4CY16 QoQ (%)
Revenue 3,099.7 2,872.7 7.9 2,634.6 17.7
EBITDA 342.4 378.6 -9.5 224.5 52.5
EBITDA (%) 11.0 13.2 -213 bps 8.5 253 bps
PAT 211.1 231.7 -8.9 129.5 63.0
Key Financials
| Crore CY15 CY16 CY17E CY18E
Net Sales 11432.8 10945.6 13447.5 14640.0
EBITDA 1173.0 1266.3 1849.8 2040.8
PAT 587.6 668.6 1196.6 1269.1
EPS (|) 31.3 35.6 63.7 67.5
Valuation summary
CY15 CY16 CY17E CY18E
PE (x) 39.0 41.5 24.5 23.1
Target PE (x) 59.2 52.0 29.1 27.4
EV to EBITDA (x) 24.0 22.3 14.9 13.1
EV/Tonne(US$) 153 153 131 128
Price to book (x) 3.5 3.4 3.1 2.9
RoNW (%) 7.0 7.7 12.7 12.4
RoCE (%) 6.0 6.9 11.4 11.5
Stock data
Amount
Mcap | 29350 crore
Debt (CY16) | 740 crore
Cash & Invest (CY16) | 1877 crore
EV | 28213 crore
52 week H/L | 1738 / 1257
Equity cap | 187.8 crore
Face value | 10
Particular
Price performance (%)
1M 3M 6M 12M
ACC 7.3 13.9 -6.1 3.0
Ambuja Cement 2.9 10.7 -4.7 6.6
Shree Cement 9.2 13.7 1.6 35.5
UltraTech Cement 0.2 15.4 0.0 19.0
ACC (ACC) | 1,562
Research Analyst
Rashesh Shah
Devang Bhatt
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q1CY17 Q1CY17E Q1CY16 YoY (%) Q4CY16 QoQ (%) Comments
Net Sales 3,099.7 2,631.7 2,872.7 7.9 2,634.6 17.7
The increase in revenues was mainly due to 3.8% YoY increase in volumes and 4.0%
YoY increase in realisation
Other Incomes 106.5 125.0 105.9 0.5 93.9 13.4
Raw Material Expenses 460.7 412.8 436.8 5.5 379.8 21.3
Employee Expenses 195.8 212.0 182.8 7.1 200.0 -2.1
Change in stock 4.2 0.0 8.3 -49.1 15.8 NM
Power and fuel 648.3 566.2 568.0 14.1 532.4 21.8
The increase in power cost was mainly due to higher pet coke prices (pet coke
consumption increased from 48.0% in Q1CY16 to 65.0% in Q1CY17)
Freight 826.4 638.7 728.5 13.4 663.3 24.6
Higher lead distance to procure fly ash and hike in diesel prices led to increase in
freight cost
Others 621.9 613.6 569.9 9.1 618.8 0.5
Rise in packaging cost and higher maintenance cost for klin shutdown led to rise in
other expenses
EBITDA 342.4 188.5 378.6 -9.5 224.5 52.5
EBITDA Margin (%) 11.0 7.2 13.2 -213 bps 8.5 253 bps Increase in power & fuel cost and freight expenses led to lower margins
Interest 24.2 17.6 18.0 35.0 19.8 22.5
Depreciation 165.9 159.0 144.4 14.9 168.8 -1.7 The increase in depreciation was due to commissioning of Jamul plant
PBT 258.8 136.9 322.1 -19.7 129.8 99.4
Total Tax 49.8 41.1 94.4 -47.3 5.0 897.4
Adjusted PAT 211.1 99.3 231.7 -8.9 129.5 63.0 The decline in PAT was mainly due to higher depreciation expenses
Key Metrics
Volume (MT) 6.6 5.6 6.4 3.8 5.5 21.1 Volumes improved due to commissioning of Jamul Plant
Realisation (|) 4,696 4,718 4,517 4.0 4,834 -2.8 Better pricing scenario in north and central led to higher realisation
EBITDA per Tonne (|) 519 338 595 -12.8 412 25.9 EBITDA/tonne declined due to higher power & fuel cost/tonne
Source: Company, ICICIdirect.com Research
Change in estimates
CY17E CY18E
(| Crore) Old New % Change Old New %Change Comments
Revenue 13,122.9 13,447.5 2.5 14,286.9 14,640.0 2.5 Revenues to improve led by capacity expansion
EBITDA 1,777.0 1,849.8 4.1 1,955.2 2,040.8 4.4
EBITDA Margin (%) 13.5 13.8 21 bps 13.7 13.9 24 bps Cost rationalisation to drive margins
PAT 1,149.1 1,196.6 4.1 1,225.7 1,269.1 3.5
EPS (|) 61.2 63.7 4.1 65.2 67.5 3.6
Source: Company, ICICIdirect.com Research
Assumptions
Comments
CY13 CY14 CY15 CY16 CY17E CY18E CY17E CY18E
Volume (MT) 23.9 24.2 23.6 23.0 27.6 29.8 27.0 29.1 Capacity expansion and improving demand scenario to drive volumes
Realisation (|) 4,556 4,742 4,838 4,717 4,872 4,921 4,869 4,918
EBITDA per Tonne (|) 572 518 496 538 670 686 659 673 We expect EBITDA/t of | 686/t in CY18E
EarlierCurrent
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 3
Annual Report Analysis
Loss in market share leads to volume decline: In CY16, the company
expanded its capacity by 2.8 MT, taking total capacity to 33.4 MT from
30.6 MT in CY15. The new capacity was commissioned in the second half
of the calendar year. The new capacity comprises a new clinkering line of
capacity 2.79 MT at Jamul and cement grinding units of capacity 1.10 MT
at Jamul and 1.35 MT at Sindri. However, despite capacity expansion,
ACC registered 2.7% YoY decline in volumes vs. industry growth of 5.0%,
which we believe is mainly due to loss in market share.
Cost rationalisation helps maintain stable margins: On the cost side, the
company undertook various cost saving measures like renegotiation of fly
ash contracts (fly ash cost declined 5.9% YoY), changes in mix
optimisation and lower landed cost of gypsum (cost of gypsum declined
10.8% YoY), increased usage of pet coke (increased from 18.0% in CY15
to 62.0% in CY16). Further, ACC was able to reduce cost of generation at
its captive power plant by 2.4% YoY to | 4.56 per kWh in CY16 mainly
due to better efficiencies. The average cost of purchased power declined
3.1% YoY to | 6.3 per kWh in CY16. In addition, rationalisation of
advertising expenses (declined by | 29.6 crore to | 80.6 crore in CY16
mainly due to reduction in various promotional activities) and 10.0% YoY
decline in packaging cost per tonne led to 2.4% YoY decline in cost per
tonne. The cost structure may further improve in coming years mainly led
by better operating cost parameters at newly commissioned Jamul/Sindri
plant coupled with higher volumes, reduction in employees (reduced by
535 people to 7,833) and expected synergy benefit for ACC-ACEM over
the next three years.
Depreciation on downward trajectory: During the year, depreciation cost
declined 7.2% YoY to | 615.1 crore mainly led by full depreciation of a
few fixed asset. However, it was partly offset by capitalisation of Jamul
project in Q3CY16 and Sindri project in Q4CY16.
Poor return ratio continues: In the past two years, ACC clocked average
RoE of 7.0%, which is the lowest in the past 10 years mainly due to low
utilisation (~71%), higher fixed cost and capacity expansion.
Better working capital management: Although there was a marginal
increase in inventory days (from 39 days to 40 days) and increase in
payable days (from 96 days to 110 days) enabled the company to register
an improvement in working capital cycle. As a result, the company was
able to register | 565.3 crore improvement in operating cash flow.
Technical know how fees continue to rise: The company paid | 107.9
crore (increased from nil in CY12 to ~18% of PAT in CY16) as technology
know-how fees to Holcim Technology for technical support received by it.
In addition, remuneration, severance to top management, independent
directors and non-executive directors accounted for 3% of PAT.
Dividend payout remained stable: The company declared a dividend of
| 17 per share (dividend payout ratio of 53%) in CY16, same as last year
(| 17 per share and dividend payout of 54% in CY15).
Technical know how fees trend
0.0
107.7112.91 112.76
107.9
0.0
20.0
40.0
60.0
80.0
100.0
120.0
CY12 CY13 CY14 CY15 CY 16
0.00
5.00
10.00
15.00
20.00
25.00
Technology know how fees as % of PAT
Dividend payout ratio
53
51
53
5554
48
49
50
51
52
53
54
55
56
CY12 CY13 CY14 CY15 CY16
Dividend payout ratio
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Pan-India presence to reduce regional risk
ACC is a pan-India player with an installed capacity of 30.5 MTPA
distributed across all regions, thereby insulating the company from any
weakness in a particular region. Out of the total capacity, the company
has ~10 MTPA capacity in the southern region, ~6.2 MTPA capacity in
the eastern region, ~6 MTPA capacity in the northern region, ~4.5 MTPA
capacity in the central region and ~4 MTPA capacity in the western
region.
Higher government spending to drive growth
Over the long term, the demand environment looks healthy, owing to an
increase in government focus on infrastructure and higher budgetary
allocation to the roads & housing sector. The company has also indicated
7-8% YoY growth in volumes over the next three years mainly led by
higher government spending.
Recovery in southern region to benefit company
ACC has a third of its total capacity in the southern region. With the
resolution of political problems in the region along with expectations of
an overall recovery in the demand environment, going forward, ACC
should benefit from its presence in the southern market.
To increase capacity to ~35 MT by CY17E
ACC’s capacity will be 35 MT by CY17E mainly led by commissioning of
Jamul clinker (2.8 MT) & grinding unit (1.1 MT) and Sindri grinding unit
(1.4 MT). Further one more expansion of 2.7 MT is expected in
Kharagpur.
Higher free operating cash flow sufficient for expansion plans
The company has consistently been generating healthy operating cash
flows for many years. Higher operating cash flow has ensured that the
company does not require debt for further expansion. At the end of CY13,
ACC was a totally debt-free company. Going by the present scenario, the
company will not need to raise debt for the planned expansion of 5 MT
given strong cash flows.
Exhibit 1: Healthy operating cash flow
1343
934
1987
936825
2139 2132
-300
200
700
1200
1700
2200
CY12 CY13 CY14 CY15 CY16 CY17E CY18E
| C
rore
Operating Cashflow
Source: Company, ICICIdirect.com Research
Regional presence
Central
14%
East
22%
West
13%
South
32%
North
19%
ICICI Securities Ltd | Retail Equity Research Page 5
Old, inefficient plants lead to higher cost of production…
ACC has one of the oldest manufacturing plants in the industry, resulting
in higher operating costs for the company. As can be seen from the chart
below, its other costs per tonne, which includes maintenance costs of the
plants, as percentage of industry average, is much higher than ‘total costs
except other costs’, on a per tonne basis. For example, for CY07, if the
industry’s ‘average costs per tonne after deduction of other costs’ was
| 100, the same for ACC was | 91. The industry’s ‘average other costs per
tonne’ was | 100 while that for ACC was | 143.3. Higher other costs are
the result of older machinery of the company.
Exhibit 2: Costs as percentage of industry average costs
102.2
106.9
143.3
139.9
136.3
124.6
115.9
129.8
126.0124.1
90.590.1
90.0 89.9
103.7102.5
107.7
114.0
80
90
100
110
120
130
140
150
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15
Total Costs except Other cost Other Costs
Source: Company, ICICIdirect.com Research
…but efforts on to improve efficiency and reduce cost
To improve efficiency and reduce overall cost, the company has adopted
a two-pronged approach. One is phasing out of old and inefficient plants.
As a result, ACC has reduced power usage per tonne from 85 kWh in
CY07 to 80 kWh in CY14. The second approach is to reduce dependency
on power purchase from outside. The captive power plant capacity of the
company has increased from ~237 MW in CY08 to ~384 MW till CY12.
The company met ~69% of its power requirement through captive
sources in CY07 and the remaining through the state grid while the
contribution of captive source increased to ~77% in CY15. This helped
reduce the overall cost per tonne for the company. Further, with
proposed synergies from the Holcim restructuring, we expect efficiencies
to improve, going ahead.
Exhibit 3: Fuel mix
5644
2
5
1617
2530
1 3
0
20
40
60
80
100
120
CY14 CY15
Linkage Coal E-Auction Coal Petcoke
Imported Coal Alternative Fuels
Source: Company, ICICIdirect.com Research
Exhibit 4: Purchased power share stands at 23.0% in CY15
31.4 30.424.7 25.1 28.2 25.6 23.5 24.5 23.0
68.6 69.675.3 74.9 71.8 74.4 76.5 75.5 77.0
0
20
40
60
80
100
CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15*
(%
)
Purchased Own Generation
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 6
Expect revenue CAGR at ~16.2% during CY16-18E
Going forward, we expect revenue CAGR of 16.2% in CY16-18E with
volume growth at 13.7% CAGR. Realisation growth is expected at 2.1%
CAGR in the same period. The company is well on track on the capacity
expansion front and will likely achieve its target of 35 MT by CY17E.
Exhibit 5: Expect revenue CAGR of 16.2% during CY16-18E
9594
11010 1090411480 11433
10850
13447
14640
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E
Sales (| crore)
Source: Company, ICICIdirect.com Research
Exhibit 6: Capacity addition plans
Existing Capacity (MT) 33
Planned capacity addition
Kharagpur 2.7
Total 2.7
Total Capacity by CY17E (MT) 35.7
Source: Company, ICICIdirect.com Research
Exhibit 7: Volume to grow at 13.7% CAGR during CY16-18E
24.1 23.924.2
23.6
23.0
27.6
29.8
20.0
22.0
24.0
26.0
28.0
30.0
CY12 CY13 CY14 CY15 CY16 CY17E CY18E
MT
Sales Volumes
Source: Company, ICICIdirect.com Research
Exhibit 8: Realisation to grow at 2.1% CAGR during CY16-18E
4566 4556
47424838
4717
48724921
3500
4000
4500
5000
5500
CY12 CY13 CY14 CY15 CY16 CY17E CY18E
| /
tonne
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
(%
)
Realisation (|/tonne) -LS Growth (%) -RS
Source: Company, ICICIdirect.com Research
Exhibit 9: Q1CY17 volume increases 3.8% YoY
5.826.20
5.616.00
6.366.12
5.075.45
6.60
0.0
6.0
Q1C
Y15
Q2C
Y15
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
In M
T
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
(%
)
Sales volumes -LHS Growth (%) -RHS
Source: Company, ICICIdirect.com Research
Exhibit 10: Realisation during Q1CY17 up 4.0% YoY
4958
47764884
4744
4517
4689
4877 4834
4696
3500
4000
4500
5000
5500
Q1C
Y15
Q2C
Y15
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
|
-10.0
0.0
10.0
20.0
30.0(%
)
Realisation-LHS Growth (%) -RHS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
Margins to improve but high operating cost to limit its expansion
Despite an expected recovery in demand, we expect ACC’s operating
margins expansion to be limited due to higher operating costs on account
of freight costs and legacy plants.
Exhibit 11: Expect EBITDA/tonne of | 686 in CY18E
825
572518 496
538
670 686
0
200
400
600
800
1000
CY12 CY13 CY14 CY15 CY16 CY17E CY18E
EBITDA/Tonne
Source: Company, ICICIdirect.com Research
Exhibit 12: Margins to improve led by operating leverage benefit
16.917.7
12.6
10.910.3
11.6
13.8 13.9
10
15
20
25
CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E
(%
)
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
Exhibit 13: Q1CY17 EBITDA/tonne at | 519/t
713
453 469
356
595670
444 412
519
0
100
200
300
400
500
600
700
800
Q1C
Y15
Q2C
Y15
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
| p
er t
onne
Source: Company, ICICIdirect.com Research
Exhibit 14: Margin trend (%)
9.5 9.18.5
11.614.4
9.6
7.5
13.2
14.3
0
2
4
6
8
10
12
14
16
Q1C
Y15
Q2C
Y15
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
(%
)
EBITDA Margin
Source: Company, ICICIdirect.com Research
Expect net profit CAGR of 34.0% in CY16-18E
After witnessing a sharp decline in profit in CY15, we expect net margins
to improve to 8.7% in CY18E from 6.1% in CY16. Overall, we expect net
profit to grow at a CAGR of 34.0% during CY16-18E.
Exhibit 15: Profitability trend
1094.61161.8
587.6
1196.61269.1
707.2
10.0 10.1
5.1
6.1
8.9 8.7
0
200
400
600
800
1000
1200
1400
CY13 CY14 CY15 CY16 CY17E CY18E
| c
rore
0
4
8
12
(%
)
Net profit - LS Net profit margin -RS
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 8
Outlook and valuation
With a capacity expansion of 2.8 MT in Jamul (Chhattisgarh) and 1.4 MT
in Sindri (Jharkhand), we expect CY16 to witness an improvement in the
volume growth. We expect sales volume and realisation CAGR of 13.7%
and 2.1%, respectively, during CY16-18E.
Cement demand is expected to improve over the next few years led by a
revival in the rural economy and increased infrastructure spends by the
government. Apart from improving macro, capacity expansion of 5 MT
(i.e. 16% of capacity) is expected to result in 13.7% CAGR in revenues in
CY16-18E. Further, cost control initiatives such as use of alternative fuels,
better sales mix, reduction of employees are expected to help ACC in
margin expansion, going forward. We expect OPM to improve from
11.0% to 13.9%in CY18E. Further, ACC is trading at an EV/tonne of $130,
far below the replacement cost of $150 .Hence, we maintain our BUY
rating with a revised target price of | 1,850/share (i.e. valuing the stock at
CY18E EV/tonne of $150/tonne on CY18E capacity of 35 MT).
Exhibit 16: Key assumptions
| per tonne CY13 CY14 CY15E CY16 CY17E CY18E
Sales Volume (mtpa) 23.9 24.2 23.6 23.0 27.6 29.8
Net Realisation 4556 4742 4838 4717 4872 4921
Total Expenditure 3984 4224 4342 4179 4202 4235
Stock Adjustment 3 -5 0 7 2 0
Raw material 698 819 782 709 698 785
Power & Fuel 996 1010 1014 939 982 1020
Employees 277 309 327 334 297 330
Freight 963 1065 1144 1146 1252 1100
Others 1048 1026 1074 1043 972 1000
EBITDA per Tonne 572 518 496 538 670 686
Source: ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 17: One year forward EV/EBITDA
2000
12000
22000
32000
42000
52000
62000
72000
82000
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
(|
crore)
EV 30.0x 25.0x 20.0x 15.0x 5.0x 10.0x
Source: Company, ICICIdirect.com Research
Exhibit 18: One year forward EV/tonne
1000
2000
3000
4000
5000
6000
7000
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Million $
EV $172 $151 $131 $111 $91 $70
Source: Company, ICICIdirect.com Research
Exhibit 19: Valuation
Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) ($) (x) (%) (%)
CY15 11432.8 2.7 31.3 3.3 39.0 152.7 24.0 7.0 6.0
CY16 10945.6 -4.3 35.6 13.8 41.5 153.2 22.3 7.7 6.9
CY17E 13447.5 22.9 63.7 79.0 24.5 131.0 14.9 12.7 11.4
CY18E 14640.0 8.9 67.5 6.1 23.1 127.7 13.1 12.4 11.5
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation history vs. Consensus estimate
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
Apr-17Jan-17Oct-16Jul-16May-16Feb-16Nov-15Aug-15May-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with Hold
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Feb-12 The company looks to set up a new clinker production facility of 2.79 MTPA and allied grinding facility at Jamul. The existing clinkering and grinding lines at Jamul
will be phased outMay-12 CCI completes probe into alleged cartilsation by 39 cement companies and finds these companies, including ACC, guilty of cartelisation
Jun-12 CCI passes an order against several cement manufacturers including ACC and imposes a penalty of 0.5 times the profit for 2009-10 and 2010-11. For ACC, the
penalty works out to | 1147.59 crore
Oct-12 The company's wholly-owned subsidiary company, ACC Concrete Ltd amalgamated with the company
Nov-12 Files petition with COMPAT against CCI order that imposed penalty of | 1,147.6 crore on ACC
Dec-12 Holcim hikes royalty payment to 1% of sales with effect from January 1, 2013
Jul-13 Holcim Group to consolidate its holding in ACC through Ambuja Cements. The transaction will result in Ambuja holding 50% stake in ACC, in which Holcim India
currently holds 50.01%
Sep-13 To expand its capacity by nearly 4 MTPA in the eastern region in the next three years with an investment of over | 3000 crore
Oct-14 Suspension of limestone mining operations at Chaibasa and Bargarh
Feb-15 Resumption of limestone mining at Chaibasa Plant in Jharkhand
Jun-15 Resumption of limestone mining at Bargarh Plant in Odhisa
Jul-16 Commisions 2.79 MT clinker facility at Jamul
Aug-16 ACC becomes subsidiary of Ambuja
Oct-16 Commisions 1.4 MT grinding unit at Sindri, Jharkhand
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Holcim Group 31-Dec-16 54.5 102.4 94.0
2 Life Insurance Corporation of India 31-Dec-16 11.3 21.2 0.0
3 JPMorgan Asset Management U.K. Limited 31-Dec-16 2.3 4.3 -0.1
4 J.P. Morgan Asset Management (Hong Kong) Ltd. 28-Feb-17 2.3 4.3 0.0
5 Aberdeen Asset Management (Asia) Ltd. 31-Dec-16 2.0 3.7 0.3
6 Capital Research Global Investors 31-Dec-16 1.2 2.3 0.0
7 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-17 1.1 2.1 0.2
8 The Vanguard Group, Inc. 28-Feb-17 0.8 1.4 0.0
9 BlackRock Institutional Trust Company, N.A. 31-Mar-17 0.7 1.4 0.1
10 ICICI Prudential Asset Management Co. Ltd. 28-Feb-17 0.7 1.3 -0.3
(in %) Mar-16 Jul-16 Sep-16 Dec-16 Mar-17
Promoter 50.30 50.34 50.34 54.53 54.53
FII 14.84 15.71 16.83 14.36 14.26
DII 18.38 17.69 18.39 16.65 16.68
Others 16.48 16.26 14.44 14.46 14.53
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Holcim Group 1841.18 93.98 ICICI Prudential Asset Management Co. Ltd. -5.85 -0.28
Aberdeen Asset Management (Asia) Ltd. 5.47 0.28 FIL Investment Management (Hong Kong) Limited -4.01 -0.20
Franklin Templeton Asset Management (India) Pvt. Ltd. 5.33 0.24 Lyxor Asset Management -3.76 -0.17
Mirae Asset Global Investments (Hong Kong) Limited 3.12 0.16 L&T Investment Management Limited -2.52 -0.12
Birla Sun Life Asset Management Company Ltd. 2.77 0.12 JPMorgan Asset Management U.K. Limited -1.47 -0.08
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
Financial summary
Profit and loss statement | Crore
(Year-end March) CY15 CY16 CY17E CY18E
Total operating Income 11,432.8 10,945.6 13,447.5 14,640.0
Growth (%) -0.4 -4.3 22.9 8.9
Raw material 1848.1 1647.6 1930.6 2335.4
Power & Fuel 2396.7 2159.9 2711.1 3034.5
Employees 772.2 769.2 818.7 981.8
Freight 2704.2 2636.1 3455.7 3272.5
Others 2538.6 2466.5 2681.4 2975.0
Total Operating Exp. 10,259.7 9,679.3 11,597.6 12,599.1
EBITDA 1,173.0 1,266.3 1,849.8 2,040.8
Growth (%) -6.5 7.9 46.1 10.3
Depreciation 662.6 615.1 689.0 784.2
Interest 64.6 73.8 79.7 79.9
Other Income 484.2 344.0 425.9 550.0
Exceptional items 164.5 38.6 0.0 0.0
PBT 765.5 882.8 1,507.1 1,726.7
Total Tax 190.0 223.6 318.2 457.6
PAT 587.6 668.6 1,196.6 1,269.1
Adjusted PAT 752.0 707.2 1,196.6 1,269.1
Growth (%) -35.3 -6.0 69.2 6.1
EPS (|) 31.3 35.6 63.7 67.5
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) CY15 CY16 CY17E CY18E
Profit after Tax 587.6 668.6 1,196.6 1,269.1
Add: Depreciation 662.6 615.1 689.0 784.2
(Inc)/dec in Current Assets -300.1 4.5 -1,553.9 1,352.5
Inc/(dec) in CL and Prov. -14.3 -462.9 1,807.5 -1,273.5
CF from operating activities 935.8 825.3 2,139.2 2,132.3
(Inc)/dec in Investments 73.6 -371.4 0.0 0.0
(Inc)/dec in Fixed Assets -773.5 -654.8 -1,000.0 -1,000.0
Others -67.6 193.6 0.0 0.0
CF from investing activities -767.5 -832.7 -1,000.0 -1,000.0
Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
Inc/(dec) in loan funds 0.0 640.0 0.0 0.0
Dividend paid & dividend tax -376.6 -376.7 -439.7 -439.7
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others -7.5 -71.7 0.0 0.0
CF from financing activities -384.1 191.7 -439.7 -439.7
Net Cash flow -215.8 184.3 699.5 692.6
Opening Cash 309.9 94.1 278.4 977.9
Closing Cash 94.1 278.4 977.9 1,670.5
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) CY15 CY16 CY17E CY18E
Liabilities
Equity Capital 187.9 188.0 188.0 188.0
Reserve and Surplus 8,233.2 8,453.5 9,210.4 10,039.8
Total Shareholders funds 8,421.2 8,641.5 9,398.4 10,227.8
Total Debt 100.0 740.0 740.0 740.0
Other Liabilities 373.1 562.2 562.2 562.2
Total Liabilities 8,894.2 9,943.7 10,700.6 11,530.0
Assets
Gross Block 11,782.3 12,437.1 14,686.9 16,186.9
Less: Acc Depreciation 5,820.8 6,435.9 7,124.8 7,909.0
Net Block 5,961.5 6,001.3 7,562.1 8,277.9
Capital WIP 1,749.8 1,749.8 500.0 0.0
Total Fixed Assets 7,711.4 7,751.1 8,062.1 8,277.9
Investments+Goodwill 1,329.7 1,696.7 1,696.7 1,696.7
Inventory 1,189.4 1,224.6 1,744.9 1,488.0
Debtors 484.4 466.4 705.2 570.2
Loans and Advances 1,935.9 1,908.4 2,663.7 1,728.3
Other Current Assets 55.1 61.0 100.4 75.3
Cash 94.1 278.4 977.9 1,670.5
Total Current Assets 3,758.9 3,938.8 6,192.1 5,532.3
Creditors 3,146.6 2,704.1 4,487.5 3,341.9
Provisions 759.2 738.7 762.9 635.0
Total Current Liabilities 3,905.8 3,442.9 5,250.4 3,976.8
Net Current Assets -146.8 495.9 941.8 1,555.4
Application of Funds 8,894.2 9,943.7 10,700.6 11,530.0
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) CY15 CY16 CY17E CY18E
Per share data (|)
EPS 40.0 37.6 63.7 67.5
Cash EPS 66.5 68.3 100.3 109.3
BV 448.1 459.8 500.2 544.3
DPS 17.0 17.0 20.0 20.0
Cash Per Share 5.0 14.8 52.0 88.9
Operating Ratios (%)
EBITDA Margin 10.3 11.6 13.8 13.9
PAT Margin 5.1 6.1 8.9 8.7
Inventory days 39.0 40.3 40.3 40.3
Debtor days 14.3 15.9 15.9 15.9
Creditor days 96.0 97.6 97.6 97.6
Return Ratios (%)
RoE 7.0 7.7 12.7 12.4
RoCE 6.0 6.9 11.4 11.5
RoIC 8.8 10.3 15.2 15.2
Valuation Ratios (x)
P/E 50.0 43.9 24.5 23.1
EV / EBITDA 24.0 22.3 14.9 13.1
EV / Net Sales 2.5 2.6 2.0 1.8
Market Cap / Sales 2.6 2.7 2.2 2.0
Price to Book Value 3.5 3.4 3.1 2.9
Solvency Ratios
Debt/EBITDA 0.1 0.6 0.4 0.4
Debt / Equity 0.0 0.1 0.1 0.1
Current Ratio 1.0 1.1 1.2 1.4
Quick Ratio 0.9 1.1 1.0 1.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Cement)
CMP M Cap
(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
ACC* 1562 1850 Buy 29,356 31.3 35.6 63.7 24.0 22.3 14.9 153 153 131 6.0 6.9 11.4 7.0 7.7 12.7
Ambuja Cement* 248 280 Buy 49,244 5.2 4.9 5.7 30.8 29.7 28.6 170 175 172 7.9 3.8 5.1 7.8 5.1 5.8
UltraTech Cem 4,108 4300 Buy 112,724 79.3 90.1 63.9 26.7 24.6 32.1 286 272 273 10.8 11.8 7.5 10.5 10.5 7.2
Shree Cement 17,820 17000 Hold 62,014 202 366 565 45.7 26.9 17.9 386 359 359 6.5 12.3 18.5 10.9 16.8 20.8
Heidelberg Cem 137 135 Hold 3,059 1.7 1.8 3.6 13.4 19.7 18.7 124 120 113 8.4 6.0 6.2 6.8 4.3 4.4
India Cement 203 175 Buy 6,236 4.3 5.9 8.5 11.7 11.3 9.4 99 98 95 8.5 8.8 10.4 4.0 4.8 6.5
JK Cement 950 990 Hold 6,643 15.4 32.7 31.4 18.1 14.3 14.9 127 124 125 8.9 12.2 11.4 6.3 12.6 10.6
JK Lakshmi Cem 474 550 Buy 5,579 2.0 6.9 12.3 20.2 26.4 18.4 144 123 88 7.8 5.4 9.0 7.2 1.8 5.8
Mangalam Cem 377 340 Buy 1,006 -7.8 13.0 25.2 39.5 12.1 7.9 69 55 53 1.7 9.4 15.2 NA 6.8 11.8
SFCL 140 115 Hold 3,114 4.1 4.5 4.4 9.7 10.3 8.8 173 173 170 12.0 11.8 12.3 12.3 12.0 11.0
Company
EV/Tonne ($)EV/EBITDA (x)EPS (|) RoCE (%) RoE (%)
Source: Company, ICICIdirect.com Research *December year ending
ICICI Securities Ltd | Retail Equity Research Page 13
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
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ICICI Securities Ltd | Retail Equity Research Page 14
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