ACC Ltd Outperforms expectations

ACC’s 1Q09 results were significantly above our estimates, as our numbers proved to be conservative in terms of cost savings and benefits from lower coal costs. ACC reported a record-high EBITDA/mt.

Is the worst behind us in the cement cycle?
The cement earnings upcycle started in FY05, driven by rising capacity utilisation (84% in FY04 rising to 94% in FY08) and strong demand (9.3% CAGR over FY05-08). While our demand outlook remains stable (7-8% growth through FY12F), we estimate the bunching of capacity addition between June 2009 and mid-2010 will reduce utilisation to 77-80%, which will probably put margins and prices under pressure.

In the past 3 years, ACC has achieved an EBITDA/mt of Rs900, vs Rs1,066 by Ambuja Cements and Rs1,087 by Ultratech Cement (Grasim’s 100% subsidiary). However, in 1Q09, ACC recorded an EBITDA/mt of Rs1,100, vs Rs1,017 by Ambuja Cements and Rs997 by Ultratech Cement.