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Cement
ACC Q4CY2008 pre-exceptional net profit at Rs2.97 bn is ahead of our estimates (Rs2.78 bn) on account of better that expected cement realisations. Cement sales for the quarter by grew by 11.9% (last years sales include RMC sales) on the back of 2.6% improvement in cement realisation (Rs3481 per ton) and 9.1% growth in cement volumes (5.42 million tonnes). Since ACC procures 65-70% of its coal requirement through linkage coal (prices of which are administered) the company has not been severely hit by rise in coal price. Consequently the company is amongst the very few cement companies which have registered an EBIDTA improvement of 6.6% yoy (pre-exceptional EBIDTA of Rs4.44 bn) as opposed to EBIDTA decline reported by most of the cement companies. EBIDTA/Ton stood at Rs821/ton for the quarter down 2.1% yoy buy up 5% QoQ. We acknowledge that the outlook on macros for cement sector has not improved as compared to Q2FY2009. However we opine that business fundamentals, driven by sharp drop in coal, pet coke and HDPE prices have improved considerably. We believe the impending oversupply of cement on back of capacity addition and the resultant weakening of pricing power of cement producers is already factored in valuation. But what is not factored in is the possible upgrade in FY2010/CY2009 earnings given sharp moderations in cost. We upgrade our rating on ACC from SELL to HOLD with a revised price target of Rs532. We have valued ACC at 10X CY2009 earnings and USD 75 for its CY2009 capacity.