ACC June 2010 Review

ACC

June 2010 Review (Anand Rathi)

Stock Info
1. ACC has undertaken cost rationalization. It has a pan India presence and a deleverage balance sheet.
2. ACCs ongoing expansion would raise the cement capacity to 30.5m tons from 24 m tons currently
3. ACCs Maharashtra plant would get commissioned soon thus undoing the imbalance it had in terms of lower exposure to western markets.
4. ACC has been able to cut the coal consumption per ton by 15% in the last 2 years and has kept fixed costs constant despite rise in the volumes. It is expected under the guidance from Holcim it would continue to have cost rationalization measures.
5. It has been able to achieve coal linkages of upto 65%.
6. It is expected to remain FCF positive as there are no fresh capex plans.
7. It is expected to have net cash at Rs. 27 bn ending by CY11.
8. It has a EV/ton at USD 135 and a PE of 14X at a projected price of 1125
9. It has an EV/EBIDTA average of 7.5X as its 10 year average.
10. The volume CAGR expansion was just 4% as there were no expansions in CY08 and delays in CY09.
11. Last December the company has added 2 split grinding units ( with combined capacity of 2.9 m tons) in Karnataka. The corresponding clinker unit ( new wadi) would be commissioned in July 2010. The company is adding a composite plant at Chanda at Maharashtra which would be commissioned by the 3rd quarter taking its capacity to 30.5 tons.
12. These expansion plans would increase the volumes at a 9% CAGR growth over 2 years.
13. After the commissioning of its plant, the following would be its regional mix:
a. Central 15%
b. North 20%
c. West 13%
d. South 32%
e. East 20%
14. It is a super brand of India. Enjoys noteworthy brand equity and commands premium in all markets.
15. It has the highest coal linkage in the industry of 65% of its requirement. Thus it is able to check prices even when the coal prices are rising.
16. Setting up a 90 MW plant which would raise its self sufficiency from 72% to 86%. Its net gearing is expected to improve over improved cash flows and net cash position by CY 11. It is best positioned to fulfill capex plans without much load on its balance sheet.


The risks to valuation
1. Increase capacity addition
2. Steep rise in Coal prices.
3. Lower demand off take for the next couple of years.