>ACC: reported net sales and net profit of Rs 2020.7 crore

ACC reported net sales and net profit of Rs 2020.7 crore (-2.9% YoY, 3.9% QoQ) and Rs 358.9 crore (-26.1% YoY, -11.4% QoQ), respectively, in Q2CY10. These were in line with our respective estimates of Rs 2006.3 crore and Rs 380.8 crore, respectively. The EBITDA margin has declined 789 bps YoY (223 bps QoQ) to 27.4% in the quarter. ACC is adding 3 million tonnes (MTPA) at Chanda, Maharashtra, which will take its installed capacity to 30 MTPA by Q3CY10E. Considering the expansion, we expect volume growth of ~6% CAGR (CY09-11E). Cement realisations are expected to be under pressure in CY10E on account of a decline in capacity utilisation led by oversupply scenario during CY09-10. However, we expect cement prices to increase in CY11E on account of increase in utilisation rates. Increase in fuel prices and freight rates would keep margins under check, going forward.

■ Sales volumes declines 5.6% QoQ, realisation improves 1.8% QoQ
ACC reported sales volume of 5.27 MTPA that declined 2.8% YoY and 5.6% QoQ. Volumes declined on account of unavailability of railway wagons, inadequate supply of critical raw materials like slag and fly ash and delays in stabilisation of the recently commissioned new cement units. Net realisation has increased by 1.8% QoQ to Rs 3834 per tonne while it has remained flat YoY.

■ EBITDA per tonne declined 22.5% YoY, 5.9% QoQ on cost increase
The company reported an EBITDA per tonne of Rs 1049, which declined by 22.5% YoY and 5.9% QoQ. This was on account of 12% YoY (5% QoQ) increase in total expenditure to Rs 2785 per tonne.

Valuation
At the CMP of Rs 825, the stock is trading at 12.2x and 12.2x its CY10E and CY11E earnings, respectively. The stock is trading at an EV/EBITDA of 7.1x and 6.1x CY10E and CY11E EBITDA, respectively. On an EV/tonne basis, the stock is trading at $113 and $99 its CY10E and CY11E capacities, respectively. We have valued the stock at $110/tonne (8% discount to current replacement cost of $120/tonne) at its CY11E capacity of 30 MTPA and maintained our ADD rating with revised target price of Rs 9 03 per share.

To read the full report: ACC

>AUTOMOTIVE AXLE: Topline provides a pleasant surprise…

Automotive Axles (AAL) reported impressive Q3FY10 numbers by beating our estimates with the topline galloping 197.7% YoY and 15.4% QoQ to Rs 196.2 crore on the back of an increase in share of sales from OEMs and improvement in realisation on renegotiation of prices with OEMs. AAL had a lesser than anticipated sequential margin shrinkage of 80 bps due to better cost management initiatives and inventory control even though raw material costs rose by 70 bps during the same period. EBITDA grew 11.7% QoQ and 262.3% YoY to touch Rs 27.5 crore. Net
profit zoomed to Rs 14.5 crore with 439.4% YoY and 17.9% QoQ growth. The continuance of strong commercial vehicles (CV) demand due to the resounding domestic economic performance is expected to get reflected in the coming quarter as well.

■ Strong economic growth fuels demand
Continuing with the traction gained from Q4FY10, economic recovery has been robust leading to an increase in sales volumes in the medium and heavy CV (M&HCV) segment for industry leaders like Tata Motors and Ashok Leyland. AAL, as one of the major suppliers to these companies, has been a major beneficiary of the higher offtake in the CV space.

■ Export segment a cause for concern
The exports business of the company is channelled through its JV partner Arvin Meritor to various OEMs across the globe. However, the immediate concern is the slowdown in demand arising in the European and American continents due to the sluggish pace of economic recovery reflected in the 16.2% QoQ drop in sales from exports. The company is increasingly focusing on internal demand arising from OEMs.

■ Valuation
The bright CV sales outlook is expected to further improve AAL’s volumes and subsequent market share. The stock is currently trading at Rs 491, 11.7x SY11E EPS of Rs 42.1. We have valued the business at 13x SY11E EPS of Rs 42.1 to arrive at a valuation of Rs 547, which implies an 11.4% upside potential. Hence, we have changed our rating on the stock to BUY.

To read the full report: AUTOMOTIVE AXLE

>How the Great Recession Was Brought to an End

The U.S. government’s response to the financial crisis and ensuing Great Recession included some of the most aggressive fiscal and monetary policies in history. The response was multifaceted and bipartisan, involving the Federal Reserve, Congress, and two administrations. Yet almost every one of these policy initiatives remain controversial to this day, with critics calling them misguided, ineffective or both. The debate over these policies is crucial because, with the economy still weak, more government support may be needed, as seen recently in both the extension of unemployment benefits and the Fed’s consideration of further easing.

In this paper, we use the Moody’s Analytics model of the U.S. economy—adjusted to accommodate some recent financial-market policies—to simulate the macroeconomic effects of the government’s total policy response. We find that its effects on real GDP, jobs, and inflation are huge, and probably averted what could have been called Great Depression 2.0. For example, we estimate that, without the government’s response, GDP in 2010 would be about 11.5% lower, payroll employment would be less by some 8½ million jobs, and the nation would now be experiencing deflation.

When we divide these effects into two components—one attributable to the fiscal stimulus and the other attributable to financial-market policies such as the TARP, the bank stress tests and the Fed’s quantitative easing— we estimate that the latter was substantially more powerful than the former. Nonetheless, the effects of the fiscal stimulus alone appear very substantial, raising 2010 real GDP by about 3.4%, holding the unemployment rate about 1½ percentage points lower, and adding almost 2.7 million jobs to U.S. payrolls. These estimates of the fiscal impact are broadly consistent with those made by the CBO and the Obama administration. To our knowledge, however, our comprehensive estimates of the effects of the financial-market policies are the first of their kind.3 We welcome other efforts to estimate these effects.

To read the full report: END OF GREAT RECESSION

>CRISIL: RESULT UPDATE Q2CY10 (PPFAS)

CRISIL Limited has reported a flat financial performance by reporting 11% rise in consolidated total income for the quarter ended June 2010 to Rs. 1,506Mn. from Rs. 1,357Mn. in June 2009. Margins have declined on account of increased headcount and rental costs. Currently the valuations are steep at 24x CY10E earnings. We maintain our REDUCE rating on the scrip.

Performance Highlights:
Revenues from rating services have improved by 17% Y-Y to Rs. 710Mn. for the quarter ended Q2CY10 as against Rs. 608Mn. for the quarter ended Q2CY09, driven by Bank Loan ratings (BLR) & Small & Medium Enterprise ratings (SME). The company announced its 4000th BLR during the quarter.

Research services segment, recorded a 16% Y-Y growth to Rs. 666Mn. in the current quarter v/s Rs. 572Mn. for the corresponding quarter of last year. On the other hand, revenues from advisory services recorded a de-growth of 26% Y-Y at Rs. 131Mn for Q2CY10 as against Rs. 176Mn. for Q2CY09.

CRISIL has added ~10-11% employees on roll, resulting in a sharp increase in staff costs. Rental costs have also increased on account of shifting to a new rented place. As a % of sales, staff and rental costs have risen by 365bps and 209bps respectively. As a result, operating margins (OPM) have been hit by 664bps to 31% for the quarter ended June 2010 as against 38% for the quarter ended June 2009.

Reported net profit declined by 13% Y-Y to Rs. 333Mn. for Q2CY10 v/s Rs. 383Mn. for Q2CY09. This was on account of forex loss of Rs. 6.4Mn. and gratuity expense of Rs. 36Mn. After adjusting for the same, PAT declined by 6% Y-Y to Rs. 370Mn.

Valuations:
At CMP of Rs. 5,845.6/-, CRISIL is quoting at 24x CY10E and 22x CY11E earnings. We have kept our estimates unchanged for CY10 and CY11 and believe that the valuations are stretched. Hence, we maintain our REDUCE rating on the scrip.

To read the full report: CRISIL