October 18, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Healthy realisation drives margins…
ACC reported a good set of Q3CY17 numbers. The results were
better than our estimates on all fronts. The beat at topline level was
led by 17.6% YoY increase in volumes to 6.0 MT (vs I-direct estimate
of 5.3 MT) and 7.0% YoY increase in realisation to | 5,125/t (vs. I-
direct estimate of | 4902/t)
Revenues increased 25.8% YoY to | 3,054.5 crore (above I-direct
estimate of | 2,616.3 crore) led by 17.6% YoY increase in volumes
due to commissioning of Jamul plant (10% of overall capacity) and
healthy realisation
The EBITDA margin increased 196 bps YoY to 11.6% (vs. I-direct
estimate of 9.0%) due to operating leverage benefit. EBITDA/tonne
increased 28.9% YoY to | 592/t (vs. I-direct estimate of | 439/t)
Net profit increased 98.5% YoY to | 177.7 crore (vs. I-direct estimate
of | 144.6 crore) mainly led by 13.6% YoY increase in other income
and 4.0% YoY decline in interest expenses
Improving macro, capacity expansion to drive 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 government especially on
roads and housing. Consequently, cement demand is expected to reach
311 MT by FY19E (i.e. at CAGR of 7.5%) vs. (CAGR of 4.7% over the last
five years). Apart from improving macro demand, the company’s
expansion in the eastern region by ~5 MT (of which 2.8 MT was already
commissioned at Jamul with rest to come up in Kharagpur) is expected to
drive volumes over the next few years (10.0% CAGR over CY16-CY18E).
Synergy benefit from acquisition of ACC by Ambuja to reduce cost…
The acquisition of ACC by Ambuja is expected to reduce cost through
consolidation of shared services (like finance, HR, 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 CY17E.
…cost rationalisation to further boost margins
ACC has one of the oldest manufacturing plants in the industry, resulting
in higher operating costs for it. However, the company is taking steps to
rationalise cost by increasing usage of low cost fuels. Similarly, use of
alternative fuel is expected to rise from the current 3% to 5% in the next
12 months. The company is also focusing on increasing the volume of
premium products (up 18.0% YoY in Q3CY17) and higher ex-factory sales
to reduce lead distance resulting in higher margins.
Improving growth, margin metrics key positives; maintain BUY
Macro tailwinds coupled with capacity expansion of 5 MT is expected to
result in 10.0% CAGR in volumes in CY16-18E. Further, cost control
initiatives like use of alternative fuels, better sales mix, reduction of
employees is expected to boost margins over next two years. In addition,
with implementation of Good and Service Tax (GST) there will be freight
cost rationalisation, which will further lead to margin expansion, going
forward. We expect the OPM to improve from 12.0% to 14.9%in CY18E.
Hence, we maintain our BUY recommendation on the stock with a revised
target price of | 2,100/share (i.e. valuing the stock at CY18E EV/tonne of
$177/tonne, 18.0x CY18E EV/EBITDA).
Rating matrix
Rating : Buy
Target : | 2100
Target Period : 12-15 months
Potential Upside : 17%
What’s Changed?
Target Changed from | 2050 to | 2100
EPS CY17E Unchanged
EPS CY18E Changed from | 68.1 to | 71.1
Rating Unchanged
Quarterly Performance
Q3CY17 Q3CY16 YoY (%) Q2CY17 QoQ (%)
Revenue 3,054.5 2,427.7 25.8 3,312.5 -7.8
EBITDA 353.0 233.0 51.5 495.1 -28.7
EBITDA (%) 11.6 9.6 196 bps 14.9 -339 bps
PAT 177.7 89.5 98.5 321.8 -44.8
Key Financials
| Crore CY15 CY16 CY17E CY18E
Net Sales 11432.8 10945.6 12652.8 13985.6
EBITDA 1173.0 1316.7 1766.2 2082.1
PAT 587.6 716.7 1132.8 1335.6
EPS (|) 31.3 38.1 60.3 71.1
Valuation summary
CY15 CY16 CY17E CY18E
PE (x) 44.8 44.6 29.7 25.2
Target PE (x) 67.2 55.1 34.8 29.5
EV to EBITDA (x) 27.7 24.2 17.9 15.0
EV/Tonne(US$) 176 173 151 149
Price to book (x) 4.0 3.9 3.6 3.2
RoNW (%) 7.0 8.3 12.0 12.9
RoCE (%) 6.0 8.0 12.0 13.4
Stock data
Amount
Mcap | 33690 crore
Debt (CY16) | 70 crore
Cash & Invest (CY16) | 1899 crore
EV | 31861 crore
52 week H/L | 1869 / 1257
Equity cap | 187.8 crore
Face value | 10
Particular
Price performance (%)
1M 3M 6M 12M
ACC -1.7 2.0 19.8 9.1
Ambuja Cement -1.6 6.8 14.1 10.6
Shree Cement 0.9 1.2 6.3 10.6
UltraTech Cement -4.9 -5.2 -0.4 -0.8
Ramco Cement -8.3 -3.3 2.0 4.1
ACC (ACC) | 1,793
Research Analyst
Rashesh Shah
Devang Bhatt
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q3CY17 Q3CY17E Q3CY16 YoY (%) Q2CY17 QoQ (%) Comments
Net Sales 3,054.5 2,616.3 2,427.7 25.8 3,312.5 -7.8
The increase in revenues was mainly led by capacity expansion and a healthy pricing
scenario in the company's key markets
Other Incomes 85.8 150.0 75.5 13.6 166.3 -48.4
Raw Material Expenses 477.1 329.9 362.0 31.8 504.1 -5.3
Employee Expenses 200.8 208.2 186.9 7.4 218.2 -8.0
Change in stock -31.6 0.0 -71.2 -55.6 -102.2 NM
Power and fuel 673.2 528.4 536.2 25.5 684.7 -1.7
Higher usage of imported coal, caused by limited availability of auctioned coal and
higher pet coke prices led to increase in fuel expenses
Freight 803.4 680.5 599.3 34.1 875.3 -8.2 Higher diesel prices led to increase in freight cost
Others 578.7 635.2 581.5 -0.5 637.4 -9.2
EBITDA 353.0 234.2 233.0 51.5 495.1 -28.7
EBITDA Margin (%) 11.6 9.0 9.6 196 bps 14.9 -339 bps Operating leverage benefit and lower other cost led to margin expansion in Q3CY17
Interest 21.3 24.2 22.1 -4.0 22.5 -5.6
Depreciation 155.1 161.8 152.9 1.4 162.1 -4.3 The increase in depreciation was due to commissioning of Jamul plant
PBT 262.4 198.1 133.4 96.7 476.8 -45.0
Total Tax 84.7 52.5 43.9 93.0 155.0 -45.4
Adjusted PAT 177.7 144.6 89.5 98.5 321.8 -44.8 Increase in other income led to higher PAT during the quarter
Key Metrics
Volume (MT) 6.0 5.3 5.1 17.6 6.7 -11.6 Capacity expansion in the east led to 17.6% YoY growth in volumes
Realisation (|) 5,125 4,902 4,788 7.0 4,915 4.3
EBITDA per Tonne (|) 592 439 460 28.9 735 -19.4 Lower fixed cost/t led to higher EBITDA/t
Source: Company, ICICIdirect.com Research
Change in estimates
CY17E CY18E
(| Crore) Old New % Change Old New %Change Comments
Revenue 12,581.5 12,652.8 0.6 13,951.8 13,985.6 0.2
Capacity expansion coupled with macro tailwind is expected to drive
revenues over the next two years
EBITDA 1,761.8 1,766.2 0.2 2,057.4 2,082.1 1.2
EBITDA Margin (%) 14.0 14.0 -4 bps 14.7 14.9 14 bps Operating leverage benefit and cost efficiency to drive margins
PAT 1,132.4 1,132.8 0.0 1,279.1 1,335.6 4.4
EPS (|) 60.3 60.3 0.0 68.1 71.1 4.4
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 25.4 27.8 25.5 28.0 Volume to increase at a CAGR of 10.0% over CY16-18E
Realisation (|) 4,556 4,742 4,838 4,682 4,977 5,026 4,933 4,983
EBITDA per Tonne (|) 572 518 496 544 695 748 691 735 We expect EBITDA/t of | 748/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 a loss in market share.
Cost rationalisation helps to maintain stable margins: On the cost side,
the company undertook various cost saving measures like re-negotiation
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
by 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 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
next three years.
Depreciation on downward trajectory: During the year depreciation cost
declined by 7.2% YoY to | 615.1 crore mainly led by full depreciation of
few fixed assets. 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 has 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), increase in payable
days (from 96 days to 110 days) enabled the company to register
improvement in working capital cycle. As a result of this the company
was able to register | 565.3 crore improvement in operating cash flow.
Technical knowhow fees continue to rise: The company has paid | 107.9
crore (increased from nil in CY12 to ~18% of PAT in CY16) as technology
knowhow fees to Holcim Technology for technical support received by
ACC. In addition, remuneration, severance to top management,
independent directors and non-executive directors accounted for 3% of
PAT.
Dividend payout remains 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 knowhow 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 33.4 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, ~9 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
increase in government focus on infrastructure and higher budgetary
allocation to roads and housing sector. The company has also indicated
7-8% YoY growth in volumes over next few 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 CY18E
ACC’s capacity will be 35 MT by CY18E mainly led by commissioning of
Jamul clinker (2.8 MT) & grinding unit (1.1 MT) and Sindhri grinding unit
(1.4 MT). Further another 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 ACC
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
936
1543 1617 1667
-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 CY08, if the
industry’s ‘average costs per tonne after deduction of other costs’ was
| 100, the same for ACC was | 90 while the industry’s ‘average other
costs per tonne’ was | 100 while that for ACC was | 139.9. Higher other
costs are the result of older machinery of the company.
Exhibit 2: Costs as percentage of industry average costs
106.6
111.0
139.9
136.3
124.6
115.9
129.8
126.7124.8
120.9
90.190.0
89.9
103.7
102.5 102.4103.7
109.8
80
90
100
110
120
130
140
150
CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
Total Costs except Other cost Other Costs
Source: Company, ICICIdirect.com Research
…but efforts on to improve efficiency, 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.
The second approach is to reduce dependency on power purchase from
outside. 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 CY08 and the remaining
through the state grid. The contribution of captive source increased to
~74% in CY16. 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
44
18
5
5
1862
3012
3 3
0
20
40
60
80
100
120
CY15 CY16*
Linkage Coal E-Auction Coal Petcoke
Imported Coal Alternative Fuels
Source: Company, ICICIdirect.com Research, * domestic coal consumption is assumed
Exhibit 4: Purchased power share at 26.0% in CY16
30.424.7 25.1 28.2 25.6 23.5 24.5 24.0 26.0
69.675.3 74.9 71.8 74.4 76.5 75.5 76.0 74
0
20
40
60
80
100
CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16
(%
)
Purchased Own Generation
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 6
Expect revenue CAGR at ~14.0 % during CY16-18E
Going forward, we expect revenue CAGR of 14.0% in CY16-18E with
volume growth at 10.0% CAGR. Realisation growth is expected at 3.6%
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 CY18E.
Exhibit 5: Expect revenue CAGR of 14.0% during CY16-18E
9594
11010 1090411480 11433
10768
12653
13986
-
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 10.0% CAGR during CY16-18E
24.1 23.924.2
23.6
23.0
25.4
27.8
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 3.6% CAGR during CY16-18E
4566 4556
47424838
4682
49775026
3500
4000
4500
5000
5500
CY12 CY13 CY14 CY15 CY16 CY17E CY18E
| /
tonne
-6.0
-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: Q3CY17 volume increases 17.6% YoY
5.616.00
6.366.12
5.075.45
6.60 6.74
5.96
0.0
6.0
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
Q2C
Y17
Q3C
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 Q3CY17 up 7.0% YoY
4884
4744
45174628
4788 4834
4696
4915
5125
3500
4000
4500
5000
5500
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
Q2C
Y17
Q3C
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
Operating efficiency to drive margins
With operating leverage benefit and operational efficiency due to cost
optimisation the company is expected to report ~300 bps increase in
EBITDA margins over CY16-18E.
Exhibit 11: Expect EBITDA/tonne of | 748 in CY18E
825
572518 496
544
695748
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
16.9
17.7
12.6
10.910.3
12.0
14.0
14.9
10
15
20
25
CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E
(%
)
EBITDA Margin (%)
Source: Company, ICICIdirect.com Research
Exhibit 13: Q3CY17 EBITDA/tonne at | 592/t
469
356
595678
460412
519
735
592
0
100
200
300
400
500
600
700
800
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
Q2C
Y17
Q3C
Y17
| p
er t
onne
Source: Company, ICICIdirect.com Research
Exhibit 14: Margin trend (%)
7.5
11.0
14.9
11.6
9.6
13.2
14.7
9.6
8.5
0
2
4
6
8
10
12
14
16
Q3C
Y15
Q4C
Y15
Q1C
Y16
Q2C
Y16
Q3C
Y16
Q4C
Y16
Q1C
Y17
Q2C
Y17
Q3C
Y17
(%
)
EBITDA Margin
Source: Company, ICICIdirect.com Research
Expect net profit CAGR of 33.0% during CY16-18E
We expect net margins to improve to 9.5% in CY18E from 6.5% in CY16.
Overall, we expect net profit to grow at a CAGR of 33.0% during CY16-
18E.
Exhibit 15: Profitability trend
1094.61161.8
587.6
1132.8
1335.6
755.3
10.0 10.1
5.1
6.5
9.09.5
0
200
400
600
800
1000
1200
1400
1600
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 CY17 to witness an improvement in the
volume growth. We expect sales volume and realisation CAGR of 10.0%
and 3.6%, respectively, during CY16-18E.
Macro tailwinds coupled with capacity expansion of 5 MT is expected to
result in 10.0% CAGR in volumes over CY16-18E. Further, cost control
initiatives such as use of alternative fuels, better sales mix, reduction of
employees is expected to boost margins over next two years. In addition,
with implementation of Good and Service Tax (GST) there will be freight
cost rationalisation, which will further lead to margin expansion, going
forward. We expect OPM to improve from 12.0% to 14.9%in CY18E.
Hence, we maintain our BUY recommendation on the stock with a revised
target price of | 2,100/share (i.e. valuing the stock at CY18E EV/tonne of
$177/tonne, 18.0x CY18E EV/EBITDA).
Exhibit 16: Key assumptions
| per tonne CY13 CY14 CY15E CY16 CY17E CY18E
Sales Volume (mtpa) 23.9 24.2 23.6 23.0 25.4 27.8
Net Realisation 4556 4742 4838 4682 4977 5026
Total Expenditure 3984 4224 4342 4138 4282 4278
Stock Adjustment 3 -5 0 7 -51 0
Raw material 698 819 782 691 748 748
Power & Fuel 996 1010 1014 939 1042 1025
Employees 277 309 327 329 316 330
Freight 963 1065 1144 1148 1287 1225
Others 1048 1026 1074 1024 940 950
EBITDA per Tonne 572 518 496 544 695 748
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
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
Oct-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
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
Oct-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 44.8 176.3 27.7 7.0 6.0
CY16 10945.6 -4.3 38.1 22.0 44.6 173.0 24.2 8.3 8.0
CY17E 12652.8 15.6 60.3 58.1 29.7 150.6 17.9 12.0 12.0
CY18E 13985.6 10.5 71.1 17.9 25.2 149.2 15.0 12.9 13.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommendation history vs Consensus estimate
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Oct-17Jul-17Apr-17Jan-17Oct-16Aug-16May-16Feb-16Nov-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 30-Jun-17 54.5 102.4 0.0
2 JPMorgan Asset Management U.K. Limited 30-Jun-17 2.2 4.1 -0.2
3 J.P. Morgan Asset Management (Hong Kong) Ltd. 31-Aug-17 2.0 3.8 -0.3
4 Aberdeen Asset Management (Asia) Ltd. 31-Dec-16 2.0 3.7 0.3
5 Capital World Investors 30-Sep-17 1.6 3.0 0.0
6 Capital Research Global Investors 30-Jun-17 1.2 2.3 0.0
7 Reliance Nippon Life Asset Management Limited 30-Sep-17 1.0 1.9 0.3
8 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 0.9 1.7 0.0
9 The Vanguard Group, Inc. 31-Aug-17 0.9 1.6 0.0
10 Aditya Birla Sun Life AMC Limited 30-Sep-17 0.7 1.4 0.3
(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Promoter 50.34 54.53 54.53 54.53 54.53
FII 16.83 14.36 14.26 14.78 13.64
DII 18.39 16.65 16.68 16.23 16.97
Others 14.44 14.46 14.53 14.46 14.86
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Reliance Nippon Life Asset Management Limited 7.30 0.29 J.P. Morgan Asset Management (Hong Kong) Ltd. -8.73 -0.31
Aditya Birla Sun Life AMC Limited 6.40 0.25 BlackRock Institutional Trust Company, N.A. -4.77 -0.19
Axis Asset Management Company Limited 4.24 0.17 APG Asset Management -3.65 -0.16
Franklin Templeton Asset Management (India) Pvt. Ltd. 1.21 0.05 Lyxor Asset Management -4.05 -0.16
SBI Funds Management Pvt. Ltd. 0.82 0.03 JPMorgan Asset Management U.K. Limited -3.77 -0.16
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 12,652.8 13,985.6
Growth (%) -0.4 -4.3 15.6 10.5
Raw material 1848.1 1606.8 1771.6 2081.3
Power & Fuel 2396.7 2159.5 2649.3 2852.1
Employees 772.2 756.2 804.6 918.2
Freight 2704.2 2640.0 3271.9 3408.6
Others 2538.6 2466.5 2389.2 2643.4
Total Operating Exp. 10,259.7 9,629.0 10,886.6 11,903.5
EBITDA 1,173.0 1,316.7 1,766.2 2,082.1
Growth (%) -6.5 12.2 34.1 17.9
Depreciation 662.6 615.1 629.9 679.6
Interest 64.6 79.7 89.2 75.0
Other Income 484.2 348.9 483.6 490.0
Exceptional items 164.5 38.6 0.0 0.0
PBT 765.5 932.2 1,530.6 1,817.4
Total Tax 190.0 226.3 404.6 490.7
PAT 587.6 716.7 1,132.8 1,335.6
Adjusted PAT 752.0 755.3 1,132.8 1,335.6
Growth (%) -35.3 0.4 50.0 17.9
EPS (|) 31.3 38.1 60.3 71.1
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) CY15 CY16 CY17E CY18E
Profit after Tax 587.6 716.7 1,132.8 1,335.6
Add: Depreciation 662.6 615.1 629.9 679.6
(Inc)/dec in Current Assets -300.1 4.5 -902.9 -438.9
Inc/(dec) in CL and Prov. -14.3 207.1 756.8 90.3
CF from operating activities 935.8 1,543.5 1,616.5 1,666.7
(Inc)/dec in Investments 73.6 -371.4 50.0 0.0
(Inc)/dec in Fixed Assets -773.5 -664.5 -1,000.0 -1,000.0
Others -67.6 203.3 0.0 0.0
CF from investing activities -767.5 -832.6 -950.0 -1,000.0
Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0
Inc/(dec) in loan funds 0.0 -30.0 0.0 0.0
Dividend paid & dividend tax -376.6 -376.7 -373.7 -373.7
Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0
Others -7.5 -98.1 0.0 0.0
CF from financing activities -384.1 -504.7 -373.7 -373.7
Net Cash flow -215.8 206.1 292.8 292.9
Opening Cash 309.9 94.1 300.2 593.0
Closing Cash 94.1 300.2 593.0 886.0
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 8,475.2 9,234.3 10,196.1
Total Shareholders funds 8,421.2 8,663.2 9,422.3 10,384.1
Total Debt 100.0 70.0 70.0 70.0
Other Liabilities 373.1 562.2 562.2 562.2
Total Liabilities 8,894.2 9,295.4 10,054.4 11,016.3
Assets
Gross Block 11,782.3 13,935.6 14,696.6 16,196.6
Less: Acc Depreciation 5,820.8 6,435.9 7,065.8 7,745.4
Net Block 5,961.5 7,499.7 7,630.8 8,451.2
Capital WIP 1,749.8 261.0 500.0 0.0
Total Fixed Assets 7,711.4 7,760.7 8,130.8 8,451.2
Investments+Goodwill 1,329.7 1,687.0 1,637.0 1,637.0
Inventory 1,189.4 1,224.6 1,569.4 1,518.9
Debtors 484.4 466.4 636.0 582.5
Loans and Advances 1,935.9 1,908.4 2,267.0 2,823.8
Other Current Assets 55.1 61.0 90.9 77.0
Cash 94.1 300.2 593.0 886.0
Total Current Assets 3,758.9 3,960.6 5,156.3 5,888.1
Creditors 3,146.6 3,374.1 4,162.1 4,168.0
Provisions 759.2 738.7 707.6 791.9
Total Current Liabilities 3,905.8 4,112.9 4,869.6 4,959.9
Net Current Assets -146.8 -152.3 286.7 928.2
Application of Funds 8,894.2 9,295.4 10,054.4 11,016.3
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) CY15 CY16 CY17E CY18E
Per share data (|)
EPS 40.0 40.2 60.3 71.1
Cash EPS 66.5 70.9 93.8 107.3
BV 448.1 461.0 501.5 552.6
DPS 17.0 17.0 17.0 17.0
Cash Per Share 5.0 16.0 31.6 47.2
Operating Ratios (%)
EBITDA Margin 10.3 12.0 14.0 14.9
PAT Margin 5.1 6.5 9.0 9.5
Inventory days 39.0 40.3 40.3 40.3
Debtor days 14.3 15.9 15.9 15.9
Creditor days 96.0 108.7 108.7 108.7
Return Ratios (%)
RoE 8.9 8.7 12.0 12.9
RoCE 11.2 11.3 16.1 17.2
RoIC 8.8 9.8 15.3 16.3
Valuation Ratios (x)
P/E 57.3 47.0 29.7 25.2
EV / EBITDA 27.7 24.2 17.9 15.0
EV / Net Sales 2.8 2.9 2.5 2.2
Market Cap / Sales 2.9 3.1 2.7 2.4
Price to Book Value 4.0 3.9 3.6 3.2
Solvency Ratios
Debt/EBITDA 0.1 0.1 0.0 0.0
Debt / Equity 0.0 0.0 0.0 0.0
Current Ratio 1.0 1.0 1.1 1.2
Quick Ratio 0.9 0.9 0.9 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) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
ACC* 1,793 2100 Buy 33,698 40.2 60.3 71.1 24.2 17.9 15.0 173 151 149 11.3 16.1 17.2 8.7 12.0 12.9
Ambuja Cement* 281 305 Buy 55,797 4.9 5.2 6.9 24.0 21.9 16.1 197 184 184 3.8 5.0 8.1 5.1 5.3 6.8
UltraTech Cem 4,041 4750 Buy 110,885 96.3 88.1 125.8 22.1 22.2 15.8 255 225 217 12.4 8.7 12.2 11.1 9.6 12.4
Shree Cement 18,580 19700 Hold 64,658 384.8 442.6 576.3 26.3 23.0 17.1 377 363 290 12.3 14.1 16.9 17.4 16.9 18.4
Heidelberg Cem 119 140 Hold 2,697 3.4 3.8 6.0 14.2 13.3 10.1 109 105 102 8.2 8.5 12.7 7.9 8.5 13.2
India Cement 180 232 Buy 5,530 5.4 7.8 10.1 9.8 8.6 8.1 91 88 85 7.5 8.3 8.7 3.3 4.5 5.6
JK Cement 949 1265 Buy 6,636 37.1 44.7 53.3 13.7 11.8 10.1 122 113 111 12.6 13.9 15.7 14.5 14.4 15.1
JK Lakshmi Cem 393 495 Hold 4,626 7.0 9.6 20.0 17.0 13.2 9.3 89 80 73 7.5 9.5 14.1 5.9 7.7 13.8
Mangalam Cem 358 425 Buy 956 12.9 11.7 38.2 11.6 10.6 5.5 55 52 50 10.2 10.3 20.0 6.8 5.9 16.3
Star Cement 107 135 Hold 5,393 4.1 6.2 5.7 14.8 11.1 11.1 216 210 196 13.8 18.3 16.8 14.0 18.1 14.8
Ramco Cement690 822 Buy 16,427 27.3 25.9 30.1 15.1 15.2 13.2 179.0 181.2 168.7 12.7 11.2 12.0 17.4 15.2 15.6
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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ICICIdirect.com Research Desk,
ICICI Securities Limited,
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ICICI Securities Ltd | Retail Equity Research Page 14
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