ACC Result Update

2QCY2010 Result Update | Cement
July 23 2010

ACC NEUTRAL
CMP Rs820
Performance Highlights Target Price -
Y/E Dec (Rs cr) 2QCY2010 1QCY2010 % chg qoq 1QCY2009 % chg yoy Investment Period -
Net Sales 2,021 2,102 (3.9) 2,081 (2.9)
Stock Info
Operating Profit 595 657 (9.5) 772 (23.0)
OPM (%) 29.4 31.2 (178bp) 37.1 (769bp) Sector Cement
Net Profit 359 405 (11.4) 486 (26.1) Market Cap (Rs cr) 15,320
Beta 0.8
Source: Company, Angel Research
52 Week High / Low 1017/686
For 2QCY2010, ACC reported a 26.1% yoy decline in net profit due to the
Avg. Daily Volume 102870
marginal de-growth in top-line, flat realisations and increase in operating expenses.
Going ahead, we expect realisations to continue to be under pressure due to the Face Value (Rs) 10
company’s substantial exposure in the southern region in CY2010, which would BSE Sensex 18,131
improve marginally in CY2011. At current levels, the stock is fairly priced and we
Nifty 5,449
maintain our Neutral view on the stock.
Reuters Code ACC.BO
Operating profit down 23.0%: ACC’s net sales de-grew by 2.9% yoy and were in
line with our estimates. Top-line de-grew owing to the 2.8% fall in despatches to Bloomberg Code ACC@IN
5.27mn tonnes coupled with flat realisations at Rs3,834/tonne. The despatches
declined due to unavailability of rail wagons and delays in stabilisation of new
plants. On the operating front, the company’s margins fell by 768bp yoy to 29.4% Shareholding Pattern (%)
(37.1%) on account of the increase in raw material, freight and power costs. The Promoters 46.2
company’s net profit de-grew by 26.1% yoy to Rs359cr, primarily on account of the
23% decline in operating profits and 22.7% yoy increase in depreciation costs to MF / Banks / Indian Fls 24.9
Rs96.2cr (Rs78cr). FII / NRIs / OCBs 13.2
Outlook and Valuation: We expect ACC to register 6% CAGR in top-line over Indian Public / Others 15.7
CY2009-11E on higher dispatches due to capacity addition. We have pruned our
net sales estimates for CY2011E, by assuming 3% lower growth in realisation in
CY2010E as against the earlier 5%. We also expect the company’s operating and Abs. (%) 3m 1yr 3yr
net profit to register 5% and 7% decline in CAGR over CY2009-11E. At current
levels, the stock is fairly valued and we maintain our Neutral view on the stock. Sensex 3.1 22.0 16.4
ACC (11.2) 1.0 (26.3)

Key Financials
Y/E Dec ( Rs cr) CY2008 CY2009 CY2010E CY2011E
Net Sales 7,166 7,943 7,754 8,850
% chg 2.3 10.8 (2.4) 14.1
Net Profit 1,213 1,607 1,198 1,400
% chg (1.0) 32.5 (25.4) 16.8
OPM (%) 24.2 31.2 24.8 25.1
FDEPS(Rs) 67.2 85.5 63.7 74.5
P/E(x) 12.2 9.6 12.9 11.0
P/BV(x) 3.1 2.6 2.2 2.0
RoE(%) 26.7 29.4 18.6 19.0 Rupesh Sankhe
RoCE(%) 26.9 33.7 20.6 21.3 022-40403800 Ext 319
EV/Sales 1.9 1.6 1.7 1.4 rupeshd.sankhe@angeltrade.com

EV/tonne 123 102 94 89
V Srinivasan
Installed capacity (mtpa) 23 27 30 30.4
022-40403800 Ext 330
EV/EBITDA 7.7 5.3 6.9 5.6 v.srinivasan@angeltrade.com
Source: Company, Angel research

Please refer to important disclosures at the end of this report 1

ACC| 2QCY2010 Result Update

Exhibit 1: 2QCY10 Performance
Y/E Dec (Rs cr) 2QCY10 1QCY10 % chg qoq 2QCY09 % chg yoy 1HCY10 1HCY09 % chg yoy
Net Sales 2,021 2,102 (3.9) 2,081 (2.9) 4,123 4,136 (0.3)
Other Operating Income 41 34 20.3 39 7.4 76 65 16.4
Total Operating Income 2,062 2,136 (3.5) 2,120 (2.7) 4,198 4,202 (0.1)
Net Raw Material Costs 264 307 (13.9) 248 6.4 571 533 7.2
(% of Sales) 13.1 14.6 11.9 13.8 12.9
Power & Fuel 393 393 0.2 374 5.2 786 785 0.1
(% of Sales) 19.5 18.7 18.0 19.1 19.0
Staff Costs 106 90 18.7 97 9.8 196 176 11.2
(% of Sales) 5.3 4.3 4.7 4.8 4.3
Freight & Forwarding 270 275 (1.9) 255 6.0 545 532 2.4
(% of Sales) 13.4 13.1 12.2 13.2 12.9
Other Expenses 434 415 4.5 374 16.0 849 728 16.7
(% of Sales) 21.5 19.8 18.0 20.6 17.6
Total Expenditure 1,468 1,480 (0.8) 1,348 8.9 2,947 2,755 7.0
Operating Profit 594 657 (9.5) 772 (23.0) 1,251 1,447 (13.5)
OPM (%) 29.4 31.2 37.1 30.3 35.0 (4.63)
Interest 14 13 10 16.0 (11.8) 27 53 (49.1)
Depreciation 96 94 2.8 78 22.7 190 157 20.6
Other Income 18 26 (30.9) 18 (0.8) 45 42 6.5
PBT (incl. Extr. Items) 502 577 (12.9) 696 (27.8) 1,079 1,279 (15.6)
Provision for Taxation 144 172 211 (31.9) 315 388 (18.8)
(% of PBT) 28.6 29.8 30.3 29.2 30.4
Reported PAT 359 405 (11.4) 486 (26.1) 764 890 (14.2)
PATM (%) 17.8 19.3 23.3 18.5 21.5
Equity Capital 187.9 187.9 187.9 0.0 187.9 187.9
EPS (Rs) 19.1 21.6 25.8 (26.1) 40.7 47.4
Adjusted PAT 359 405 (11.4) 486 (26.1) 764 890 (14.2)

Exhibit 2: Financial performance trend

2,500 40

2,000 35

1,500 30
(Rs cr)

(%)

1,000 25

500 20

0 15
1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10
Net Sales Net Profit OPM


July 23 2010 2


Exhibit 3: 2QCY10 Angel Estimates v/s Actual
Actual Estimates Variation (%)
Net Sales 2,021 2,051 (1.5)
Operating Profit 595 623 (4.5)
Net Profit 359 377 (4.8)

Operational highlights

For 2QCY2010, the company’s realisation per tonne remained flat on a yoy basis
at Rs3,834. However, the raw material costs per tonne grew by 9.5% yoy. The
freight costs per tonne rose by 9.0% yoy due the increase in diesel costs.
Depreciation cost too increased by 26.1% yoy following increase in capacity. The
operating profit per tonne stood at Rs1,128, down 24.2% yoy. Net profit per tonne
for the quarter stood at Rs681, down 24% yoy.

Exhibit 4: Operational performance
yoy qoq
Parameter (Rs) 2QCY10 1QCY10 2QCY09
chg(%) chg (%)
Realisation/tonne 3,834 3,767 3,840 (0.1) 1.8
Raw Material Cost/tonne 501 550 458 9.5 (8.8)
Power & Fuel Cost /tonne 746 703 690 8.2 6.1
Freight & Forwarding
512 493 470 9.0 3.9
Cost/tonne
Operating Profit/tonne 1,128 1,177 1,489 (24.2) (4.1)
Depreciation/tonne 182 168 145 26.1 8.9
Net Profit/tonne 681 726 896 (24.0) (6.2)

3mt expansion project to be commissioned shortly
Work at the 3mtpa clinkering plant in Chanda, along with the 25MW captive
power plant is on track and is expected to be commissioned in 3QCY2010. Post
these capacity additions, the company’s cement capacity will increase to
30.0mtpa, while its captive power capacity (CPC) will increase to 346MW.

Exhibit 5: Installed capacity

40

30 30
30 27
22 23
mtpa

20

10

0
CY2007 CY2008 CY2009 CY2010E CY2011E


July 23 2010 3


Investment Arguments
Growth to be driven by capacity addition: ACC’s despatches grew by a moderate
5% during CY2006-09 as against the industry growth rate in excess of 10%.
However, the company’s volumes are set to post a CAGR of 8.3% over
CY2009-11E as its capacity is set to expand from 26mtpa in CY2009 to 30mtpa in
CY2010. The company has already completed expansion at Bargarh taking total
capacity of the plant to 2.1mtpa. Apart from expanding capacities on its own, ACC
has also been increasing its capacity by acquiring stakes in smaller companies. In
line with this, the company had acquired 45% stake in Asian Cement while
acquiring 100% stake in Encore Cement. Asian Cement, which has a 0.3mn
tonnes grinding unit in HP, is adding another 1mn tonnes at the unit. Encore
Cement has a 0.2mt slag grinding unit at Vishakapatnam. ACC has a strong
balance sheet with healthy cash inflows and free cash flow over CY2009E-11E,
which will enable it to fund its next round of expansion through internal accruals.

Diversified geographical presence to negate ill-effects of poor regional demand-
supply dynamics: ACC is a pan-India player and hence is insulated to a large
extent from the risks of slow-down in demand and price collapse in any particular
region. The company’s brands are popular across the country. Going ahead, post
the proposed capacity expansions, the south, west, north, central and east regions
would contribute 23%, 22%, 19%, 18% and 16% respectively to the company’s
overall revenues. Thus, the company’s exposure to the southern region, which has
faced the highest price correction over the past several months due to excess
capacity and slowdown, is limited.

Increased use of captive power to improve operating margins: The use of captive
power has improved the company’s cost competitiveness and quality of power. The
share of captive power in the company’s overall power consumption has increased
to 70% in CY2009 from 64% in CY2008 and is set to increase to 75% in CY2010.
The company’s captive power capacity (CPC) is set to increase to 346MW by
CY2010. Over the years, ACC has improved its efficiency owing to which its power
consumption per tonne of cement has declined.

Outlook and Valuation
We expect ACC to register 6% CAGR in top-line over CY2009-11E, on account of
the increased dispatches due to capacity addition. We have pruned our estimates
of net sales for CY2011E, by assuming lower 3% growth in realisations in
CY2010E as against the earlier 5%. We also expect the company’s operating and
net profit to witness a decline of 5% and 7% CAGR respectively, over CY2009-11E.
At current levels, the stock is fairly valued and we maintain our Neutral view on the
stock.

July 23 2010 4


Exhibit 6: Change in Estimates
CY10E CY11E
Parameter Earlier Revised Variation (%) Earlier Revised Variation(%)
Net Sales 7,754 7,754 - 9,021 8,850 (1.9)
Operating Exp 5,828 5,828 - 6,626 6,626 0.0
Operating Profit 1,926 1,926 - 2,396 2,224 (7.2)
Depreciation 396 396 - 396 434 9.5
Interest 52 52 - 55 55 0.0
PBT 1,788 1,788 - 2,268 2,089 (7.9)
Tax 590 590 - 748 689 (7.9)
PAT 1,198 1,198 - 1,591 1,400 (12.0)

Exhibit 7: Key Assumptions
Parameter Earlier Estimates Revised Estimates
CY10E CY11E CY10E CY11E
Installed Capacity (mtpa) 30.4 30.4 30.4 30.4
yoy Growth (%) 11 0 11 0
Utilisation (%) 74 82 74 82
Despatches (mt) 22.5 24.9 22.5 24.9
Net Realisation/tonne (Rs) 3,447 3,619 3,447 3,550
Growth (16) 5 (16) 3
Raw material costs/tonne 408 428 408 428
Power 721 755 721 755
EBITDA/tonne 856 961 856 892

Exhibit 8: Angel EPS v/s Bloomberg Consensus
Year/(Rs) Angel Forecast Bloomberg Consensus Variation (%)
CY10E 63.7 69.1 (7.8)
CY11E 74.5 68.5 8.8
Source: Bloomberg, Angel Research

Exhibit 9: One-year forward EV/EBITDA band

30,000

20,000
(Rs cr)

10,000

0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
4x 6x 8x 10x


July 23 2010 5


Exhibit 10: One year forward EV/tonne band
30,000

20,000

(Rs cr)
10,000

0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

$70 $90 $110 $130


Exhibit 11: Discount in ACC P/E to Sensex P/E

200

150

100
(%)

50

0

(50)

(100)
Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10

Disc. to Sensex Historic Avg Disc


Exhibit 12: Recommendation Summary
Company Reco CMP Tgt Price Upside FY2012E FY2012E FY2010-12E FY2012E FY2012E
(Rs) (Rs) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)
ACC* Neutral 820 - - 2.0 11.0 (7.5) 21.3 19.0
Ambuja Cements* Neutral 115 - - 2.2 15.4 (3.5) 19.1 16.3
Grasim Buy 1,826 2,216 21.4 0.9 7.0 (12.2) 15.0 13.0
India Cem Buy 107 135 26.3 0.8 9.2 0.4 5.8 4.7
JK Lakshmi Buy 67 98 46.3 0.6 4.3 (10.8) 12.8 14.9
Madras Cem Buy 103 141 36.8 1.3 9.7 (15.3) 8.4 10.7
Ultratech Buy 832 1,084 30.2 1.6 8.4 6.1 18.3 17.6
Source: Company, Angel research; Note: *Y/E dec

July 23 2010 6


Profit & Loss Statement (Standalone)
Y/E Dec (Rs cr) CY06 CY07 CY08 CY09 CY10E CY11E
Total operating income 5,803 7,007 7,166 7,943 7,754 8,850
% chg 80.2 20.7 2.3 10.8 (2.4) 14.1
Total Expenditure 4,180 5,090 5,433 5,463 5,828 6,626
Net Raw Materials 759 903 886 956 998 1,160
Other Mfg costs 973 1,195 1,599 1,540 1,622 1,882
Personnel 318 353 413 364 418 469
Other 2,131 2,639 2,534 2,604 2,790 3,116
EBITDA 1,623 1,917 1,733 2,480 1,926 2,224
% chg 203.0 18.1 (9.6) 43.1 (22.3) 15.5
(% of Net Sales) 28.0 27.4 24.2 31.2 24.8 25.1
Depreciation& Amortisation 254 305 294 342 396 434
EBIT 1,369 1,612 1,439 2,138 1,530 1,790
% chg 269.0 17.8 (10.7) 48.5 (28.4) 17.0
(% of Net Sales) 23.6 23.0 20.1 26.9 19.7 20.2
Interest & other Charges 52 24 40 105 52 55
Other Income 142 129 338 261 310 354
(% of PBT) 8.7 6.7 18.9 11.4 17.3 16.9
Share in profit of Associates
Recurring PBT 1,459 1,717 1,737 2,294 1,788 2,089
% chg 260.0 17.7 1.1 32.1 (22.1) 16.8
Extraordinary Expense/(Inc.) (161) (213) (49) - - -
PBT (reported) 1,620 1,930 1,785 2,294 1,788 2,089
Tax 388 492 524 688 590 689
(% of PBT) 23.9 25.5 29.3 30.0 33.0 33.0
PAT (reported) 1,232 1,439 1,262 1,607 1,198 1,400
ADJ. PAT 1,071 1,225 1,213 1,607 1,198 1,400
% chg 292.4 14.4 (1.0) 32.5 (25.4) 16.8
(% of Net Sales) 18.5 17.5 16.9 20.2 15.5 15.8
Basic EPS (Rs) 66 77 67 85 64 74
Fully Diluted EPS (Rs) 66 77 67 85 64 74
% chg 130.4 16.6 (12.3) 27.3 (25.4) 16.8

July 23 2010 7


Balance Sheet (Standalone)
Y/E (Rs cr) CY06 CY07 CY08 CY09 CY10E CY11E
SOURCES OF FUNDS
Equity Share Capital 187 188 188 188 188 188
Reserves& Surplus 2,955 3,965 4,740 5,828 6,677 7,667
Shareholders Funds 3,143 4,153 4,928 6,016 6,865 7,855
Minority Interest
Total Loans 916 469 482 567 687 737
Deferred Tax Liability 321 331 336 349 349 349
Total Liabilities 4,380 4,953 5,746 6,932 7,901 8,942
APPLICATION OF FUNDS
Gross Block 4,816 5,464 5,836 6,826 8,426 9,226
Less: Acc. Depreciation 1,894 2,149 2,366 2,668 3,064 3,498
Net Block 2,922 3,315 3,470 4,158 5,362 5,729
Capital Work-in-Progress 558 649 1,603 2,156 2,056 2,856
Goodwill - - - - - -
Investments 504 845 679 1,476 1,326 1,426
Current Assets 1,921 2,203 2,760 2,294 2,332 2,521
Cash 620 743 984 746 735 724
Loans & Advances 447 421 651 554 593 626
Other 854 1,039 1,124 994 1,004 1,171
Current liabilities 1,527 2,059 2,766 3,152 3,175 3,590
Net Current Assets 394 145 (6) (858) (843) (1,069)
Mis. Exp. not written off 1 - - - - -
Total Assets 4,380 4,953 5,746 6,932 7,901 8,942

July 23 2010 8


Cash Flow Statement (Standalone)
Profit before tax 1,620 1,930 1,785 2,294 1,788 2,089
Depreciation 254 305 294 342 396 434
Change in Working Capital 393 367 309 679 27 270
Less: Other income 142 129 338 261 310 354
Direct taxes paid 388 492 524 688 590 689
Cash Flow from Operations 1,738 1,982 1,527 2,366 1,311 1,750
(Inc)/ Decin Fixed Assets (530) (739) (1,325) (1,544) (1,500) (1,600)
(Inc)/ Dec in Investments (210) (341) 166 (797) 150 (100)
(Inc)/ Dec in loans and advances
Other income 142 129 338 261 310 354
Cash Flow from Investing (598) (951) (822) (2,079) (1,040) (1,346)
Issue of Equity 12 2 2 0 - -
Inc./(Dec.) in loans (260) (447) 13 85 120 50
Dividend Paid (Incl. Tax) 322 439 439 505 350 409
Others 52 24 40 105 52 55
Cash Flow from Financing (622) (908) (464) (525) (282) (415)
Inc./(Dec.) in Cash 517 123 241 (238) (11) (11)
Opening Cash balances 103 620 743 984 746 735
Closing Cash balances 620 743 984 746 735 724

July 23 2010 9


Key Ratios
Valuation Ratio (x)
P/E (on FDEPS) 12.5 10.7 12.2 9.6 12.9 11.0
P/CEPS 10.3 8.8 9.9 7.9 9.7 8.4
P/BV 4.9 3.7 3.1 2.6 2.2 2.0
Dividend yield (%) 2.1 2.9 2.9 3.3 2.3 2.7
EV/Sales 2.6 2.1 1.9 1.6 1.7 1.4
EV/EBITDA 9.3 7.5 7.7 5.3 6.9 5.6
EV / Total Assets 3.4 2.9 2.3 1.9 1.7 1.4
Per Share Data (Rs)
EPS (Basic) 65.7 76.6 67.2 85.5 63.7 74.5
EPS (fully diluted) 65.7 76.6 67.2 85.5 63.7 74.5
Cash EPS 79.3 92.8 82.8 103.7 84.8 97.5
DPS 17.2 23.4 23.4 26.9 18.6 21.8
Book Value 167.6 221.1 262.3 320.1 365.3 418.0
Dupont Analysis (%)
EBIT margin 23.6 23.0 20.1 26.9 19.7 20.2
Tax retention ratio 76.1 74.5 70.7 70.0 67.0 67.0
Asset turnover (x) 1.6 1.8 1.6 1.5 1.2 1.2
ROIC (Post-tax) 28.7 30.3 22.8 27.5 15.4 15.6
Cost of Debt (Post Tax) 3.8 2.6 5.9 14.0 5.5 5.2
Leverage (x) 0.3 0.0 (0.1) (0.1) (0.0) (0.0)
Operating ROE 36.1 30.6 21.3 26.5 15.2 15.6
Returns (%)
ROCE (Pre-tax) 34.3 34.6 26.9 33.7 20.6 21.3
Angel ROIC (Pre-tax) 42.2 47.9 43.1 59.9 33.6 34.3
ROE 40.6 33.6 26.7 29.4 18.6 19.0
Turnover ratios (x)
Asset Turnover (Gross Block) 1.2 1.4 1.3 1.3 1.0 1.0
Inventory / Sales (days) 39 35 39 36 37 36
Receivables (days) 13 13 15 12 9 9
Payables (days) 120 129 162 198 198 186
Working capital cycle (ex-cash) (days) (4) (21) (40) (60) (75) (70)
Solvency ratios (x)
Net debt to equity 0.1 (0.1) (0.1) (0.0) (0.0) (0.0)
Net debt to EBITDA 0.2 (0.2) (0.3) (0.1) (0.0) (0.0)
Interest Coverage (EBIT / Interest) 26.3 67.3 36.0 20.4 29.7 32.4

July 23 2010 10


Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

DISCLAIMER

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please
refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and
its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement ACC
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)

July 23 2010 11

ACC Result Update

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