ACC, the largest standalone cement manufacturer in India with a capacity of 22.4mtpa and market share of 13%, is increasing capacity by 8mtpa by CY2010, taking its total capacity to 30.4mtpa.
Additional power capacity of 105MW during the same period will help it contain its power costs. Over the next two years, we expect ACC to deliver a steady volume growth led by capacity expansions.
We expect ACC’s sales volumes to grow at a CAGR of 14.5% over CY2007-09E. However, topline will grow at a CAGR of 7.7% as cement prices would correct going ahead.
We estimate EBITDA Margins to decline from 27.4% in CY2007 to 22% in CY2009 due to fall in realizations and rising input costs. At Rs542, ACC trades at an EV/EBIDTA of 6.1x its CY2009E EBITDA. However, on EV/tonne basis, it trades at $90/tonne on CY2009 capacity.
Over the last few years, ACC has traded at a forward EV/EBIDTA of over 8x and EV/tonne of $180-220/tonne owing to strong outlook for the cement sector.
However, with cement prices set to decline, the government intervention and firm input costs, we expect the stock to trade at a higher discount to the prevailing replacement costs of about $125/tonne. We downgrade the stock from Neutral to REDUCE.