ACC Limited’s EBITDA margin nosedived 409 bps in Q1’08 due to a surge in raw material and fuel costs. However, net sales increased 9% y-o-y on the back of a higher sales volume.
Since the company’s major expansion plans are scheduled to be completed in 2009, we believe that it will face a capacity constraint in 2008.
ACC is working at a 90% utilisation rate, and blended cement constitutes approximately 90% of the total cement manufactured. This leaves little scope for an increase in cement production without capacity expansion. Thus, we believe that top line will grow by around 3% in CY08E, however for CY09E it is expected to be 8%.
Going forward, factors such as government price control policies and a likely excess supply scenario will further keep realisations under pressure. EBITDA margin, which already witnessed a drop in the recently concluded quarter, will reduce further.
The stock is currently trading at a P/E of 9.6x CY08E. We have valued the company using DCF analysis. Based on our analysis and valuation, the stock seems to be fairly valued. We reiterate our HOLD rating.
Since the company’s major expansion plans are scheduled to be completed in 2009, we believe that it will face a capacity constraint in 2008.
ACC is working at a 90% utilisation rate, and blended cement constitutes approximately 90% of the total cement manufactured. This leaves little scope for an increase in cement production without capacity expansion. Thus, we believe that top line will grow by around 3% in CY08E, however for CY09E it is expected to be 8%.
Going forward, factors such as government price control policies and a likely excess supply scenario will further keep realisations under pressure. EBITDA margin, which already witnessed a drop in the recently concluded quarter, will reduce further.
The stock is currently trading at a P/E of 9.6x CY08E. We have valued the company using DCF analysis. Based on our analysis and valuation, the stock seems to be fairly valued. We reiterate our HOLD rating.
Source : live mint
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