>ACC LIMITED (IIFL)

ACC’s 4QCY09 result was considerably below our expectation. Standalone sales increased 2% YoY to Rs19.2bn, against our estimate of Rs19.4bn. PAT declined 7% YoY to Rs2.8bn against our estimate of Rs3.7bn. The negative surprise was primarily due to an unexpectedly steep fall in realisations, coupled with an increase in other expenses. Realisation dropped on account of a sharp fall in prices in the key central and south regions. Prices have recovered sharply in the central region, which accounts for ~25% of ACC’s total cement volumes. We expect the positive news flow from the central region to boost the performance of ACC’s stock in the short term. That said, the valuation is not cheap; we continue to prefer Ambuja Cement, which has a better regional mix and reasonable valuations, in our view. We have tweaked down our estimates, and retain REDUCE on ACC.

Sharply below expectation

■ Muted volume growth: ACC's cement volumes declined 2% YoY on account of poor demand in the south and capacity constraints in other regions. A major part of ACC's expansion in Bargarh, Orissa, was completed in 3QCY09. The 3mtpa expansion in Wadi, Karnataka is likely to start by mid-2010 (about six months later than the original schedule). The delay in expansion in Wadi is likely to lead to moderate volume growth in CY10.

■ QoQ realisation fall steeper than expected: ACC's cement realisation increased 4% YoY but declined 9% QoQ. Prices in the central region have rebounded sharply. However, with likely depressed prices in the south and moderate price declines in other regions, we expect the overall realisation to remain under pressure in CY10 as well.

To read the full report: ACC