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Equitymaster Agora Research Private Limited

Independent Investment Research

31 May, 2013

ACC Ltd. Page 1 of 10
CY08 CY09 CY10 CY11 CY12





Rising free cash flows
Jun-08 Nov-10 May-13
BSE-Sensex: Rs 123
ACC: Rs 195

Market data
Current price Rs 1,219
Market cap Rs 228,833 m
Face value 10.0
CY12 DPS (Rs) 30.0
BSE Code 500410
NSE symbol ACC
No. of shares 187.7 m
Free float 49.7
52 week H/L 1,515/1,105

Rs 100 invested is now worth
Stock price Performance
(as on 31st May'13)
ACC Index*
Over 1 Yr 6.9% 21.8%
Over 3 Yrs 14.3% 5.3%
Over 5 Yrs 14.3% 4.2%
Change in stock price over 1 year are
compounded annual averages
* BSE Sensex

Shareholding (Mar-2013)
Category (%)
Promoter 50.3
FII 20.0
DII 10.6
Others 19.2
Total 100.0

Report prepared by
Equitymaster Agora Research
Private Limited.
ACC Ltd.
Buy Target price: Rs 1,778
Investment Rationale
A healthy cash-generating machine: Competition is one of the
most important elements of a market economy. It determines the
profitability of the various market participants in an industry. The
more intense the competition, the weaker the bargaining power that
the firms have.
Lets consider the Indian cement industry in this context. Despite
there being over 100 cement manufacturers in the country, the top
11-12 players control about 70% of the total cement market. In fact,
the top four players alone account for over 40% of the total industry
capacity. The large cement players enjoy some inherent advantages
over their smaller peers. This makes them valuable entities in a
commodity business such as cement.
ACC Ltd, our StockSelect for this week is one of them. It is the oldest
and the third largest cement player in India with a total cement
manufacturing capacity of 30.6 m tonnes per annum (mtpa) (8.5% of
the total industry capacity). Given its size and its long operating
history, ACC has not only weathered myriads of business cycles but
has also managed to emerge stronger and leaner over time. With
Swiss-major Holcims parentage and Ambuja Cements association,
ACC has tremendously improved its financial health over the last one
decade. Once a heavily leveraged company, ACC is currently almost
One of ACCs key strengths is the way it manages its working
capital. ACCs past financials reveal that the company has
consistently operated with negative working capital. In other words,
the companys short term liabilities have been greater than the short
term assets. A typical finance textbook will tell you that negative
working capital means the company may have trouble paying up its
dues. But in ACCs case, it reflects its bargaining power. Lower
debtors mean that the company does not offer much credit to its
buyers. On the other hand, higher current liabilities indicate that it is
able to get better terms from its creditors.
The companys robust
financial health is also
reflected in its cash flow
generation. ACC has
consistently generated
positive free cash flows
(operating cash flow less
capex) over the last
entire decade. What
more, free cash flows as
a percentage of net
profits have been
consistently increasing. The ultimate testimony of its healthy
financials is the fact that the company has paid, on an average,
over 40% of its net profits as dividends to shareholders over the
last five years.
Source: Equitymaster Research, Ace Equity

31 May, 2013

ACC Ltd. Page 2 of 10
FY03 FY05 CY06 CY08 CY10 CY12



From high debt to nearly debt-free
With all these positives, ACC certainly appears
to be a commodity player with an edge. But
despite all the strengths, the company has to
make do with the limitations of the cement
While cement is an indispensable construction
material, it is a low-value bulk commodity which
results in high transportation costs. As such, the
market is largely restricted to the domestic
economy. Secondly, the growth of cement
demand closely follows the overall economic
growth of the economy, particularly the housing
construction and infrastructure sector. And last
but not the least, the profitability of the sector is
significantly volatile. The reason being that
cement prices tend to be driven by demand-
supply dynamics. This makes forecasting future
earnings very difficult.
This is the reason why we value cement
companies at replacement cost. Based on our
valuation band for ACC, the CY15 target price is
Rs 1,778 per share. From current levels, we
expect the stock to deliver a point-to-point return
of 46% and compounded annual returns of
nearly 16% over the next 3 years. As such, we
recommend investors to Buy the stock from
a 3 year perspective.
We would like to gently remind you that your
allocation to equities should be decided upon
after keeping aside some safe cash. Also, within
your overall exposure to equities please ensure
that you broadly follow our suggested asset
allocation (explained at the end of the report)
and that no single stock comprises more than
5% of your portfolio.
The Holcim-Ambuja touch: Between 1999 and
2000, Ambuja Cements took over the
shareholding of the Tata Group and became the
single largest shareholder of ACC. Later in
2005, Swiss-major Holcim announced it plans to
acquire a majority stake in Ambuja. Today,
Holcim, through its holding companies, holds
50.3% stake in ACC and 50.6% stake in Ambuja
Cements. This makes Holcim the biggest
cement group in India. Together, ACC and
Ambuja Cements command nearly 18%
domestic market share. ACC benefits
significantly from such strong parentage in terms
of growth, vision and global expertise.
Long term demand to remain robust: Though
there are some very legitimate concerns in the
macroeconomic environment, the long term
prospects of the Indian economy remain robust.
Given the huge pent up demand for housing and
the government's focus on increased spending
on infrastructure which are the key demand
drivers for cement, the long term prospects for
the cement industry are positive. Further, the
fact that per capita consumption of cement in
India (approximately 200 kg per capital) is way
below both developing as well as developed
economies, the scope for growth over the long
term is enormous. Hence, we believe that a
company like ACC, which is one of the leading
cement producers in the country, is well poised
to capitalise on these opportunities.
Almost debt-free: Since the effects of business
cycles are more prominent in commodity sectors
like cement, it is very important that companies
from the sector maintain low leverage (debt to
equity). Lower debt burden enables them to
come out with minimum damage from a cyclical
downturn. ACC has one of the healthiest
balance sheets. The company has almost
negligible debt. The Rs 33 bn capex plan to
augment capacity by 5 mtpa over the next three
years will be completely funded through internal

*Based on Standalone Balance Sheet
Source: Equitymaster Research, Company Annual Reports

31 May, 2013

ACC Ltd. Page 3 of 10
Comparative Valuation
Parameter (Calendar Year 2012) ACC^
No. of shares outstanding# (m) 187.7 1,542.5
Current market price** (Rs) 1,219 183
Market Capitalisation (Rs m) 228,833 282,658
Capacity (m tonnes) 30.6 28.0
Capacity utilisation (%) 78.8 77.3
Return on avg net worth (%) 17.9 17.9
Cement sales (m tonnes) 24.1 21.4
Net Sales (Rs m) 111,305 973,954
Operating profit/ tonne (Rs) 816 1,128
EV/tonne (Rs) 6,450 8,753
EPS 56.5 8.4

Investment Concerns
Cement's subdued medium term outlook:
Indias GDP growth has slowed down in the last
couple of years owing to a slew of domestic as
well as global concerns. Cement demand
closely follows the overall economic growth,
particularly the housing construction and
infrastructure sector. Given that the construction
and infrastructure sector are witnessing a
slowdown, cement demand may continue to
remain subdued over the short to medium term.
During the Jan-March 2013 quarter, cement
sales remained subdued. ACC reported a 4.5%
drop in sales volumes on a year-on-year basis. It
is worth noting that this is usually the peak
demand quarter. The sluggishness in demand
underlines the slowdown in the sector and the
overall economy.
In April 2013, the wholesale price inflation (WPI)
eased to about 4.9%. Easing inflation along with
an expectation of a normal monsoon has raised
the possibility of further interest rates cuts by the
RBI. If the inflation rate sustains at a moderate
level and interest rates are lowered, it would
revive demand and investments in the economy.
This would augur very well for the cement
Overcapacity remains a drag: Riding high on
the Indian growth story, the cement producers
lined up massive capacities either through the
brownfield or greenfield expansion route over
the last few years. The aggregate industry
cement capacity now stands at about 330 m
tonnes. The oversupply scenario is expected to
persist for a couple of years until demand picks
up and exceeds the pace of capacity addition.
However, the rate of capacity addition has
slowed down in recent times.
High operating costs impact margins: The
cement manufacturing process is energy
intensive. As such, power and fuel costs
comprise over 25% of the companys operating
costs. While ACCs captive power plants
manage to fulfill over 70% of the companys
power requirements, rising fuel costs tend to
dent at the companys margins. Another major
cost head is transportation cost (about 25% of
operating costs) owing to the fact that cement is
a low value high bulk commodity. Rising diesel
prices, rail freight costs and rupee depreciation
could further aggravate this cost head. Between
CY06 and CY10, the company enjoyed an
average operating profit margin of 26.5%.
However, in the last couple of years the same
has fallen to about 18%.
ACC is one of the oldest cement companies in India.
It was born out a historic merger of 10 cement
companies in 1936. Until some time back when the
Aditya Birla Group consolidated its cement assets
under UltraTech Cement, ACC was the largest
cement manufacturer in India.

In the latter part of the 20th century, ACC diversified
into some other businesses and made some
wasteful acquisitions. These businesses became a
drag on the company's balance sheet. Between
1999 and 2000, the Tata Group sold off its entire
14.45% shareholding in ACC to subsidiary
companies of Ambuja Cements. Effectively, the
Ambuja Group became the single largest
shareholder of ACC and took over management
control. From the time Ambuja took over
management control of ACC, it revamped the latter's
business strategy. ACC decided to exit its non-
cement businesses and focus on its main business.
Today Swiss-based Holcim, a leading global
supplier of cement and aggregates holds over 50%
stake in both ACC and Ambuja Cements, making
the two firms associate companies.

ACC's total capacity for the year ended CY12 stood
at 30.6 million tonnes (~9% of total domestic
^Standalone figures; *Consolidated figures; #As of March
2013; **Closing price as of May 31, 2013

31 May, 2013

ACC Ltd. Page 4 of 10
capacity), making it the third largest player in the
Indian cement industry. With 17 cement
manufacturing units, over 40 reasy mix concrete
plants and a strong distribution network of 9,000
dealers, ACC is one of the few cement companies to
have a pan-India presence.

ACC plans to incur a capex of Rs 33 bn over the
next three years to add 5 m tonnes of cement
capacity by 2015. The company plans to fund the
entire investment through internal accruals.
Industry Prospects
The Indian cement industry is the second largest
market after China. From around 29 mtpa capacity in
FY82, the Indian cement sector has grown leaps
and bounds and the industry capacity is now around
330 mtpa. The industry is highly consolidated with
the top three groups, Aditya Birla Group (UltraTech
Cement), Holcim Group (promoters of ACC and
Ambuja Cements) and Jaiprakash Associates, alone
controlling over 40% of the total industry capacity.
Over the last decade, the cement industry has
grown at a tremendous pace as the Indian economy
witnessed a boom in the housing and construction
sector. Cement demand is largely influenced by the
housing sector which account for over 60% share.
The Indian cement industry has been witnessing
some sluggishness over the last couple of years on
account of slowing demand, overcapacity and rising
operating costs. However, the fact that there is a
huge shortfall of dwelling units in the country
suggests that demand for cement from the housing
sector will increase at a rapid pace over the next five
to ten years. The infrastructure related cement
demand is also expected to increase in the 12th five
year plan on account of huge planned expenditure
by the government.
Key management personnel
Mr Kuldip Kaura, Chief Executive Officer &
Managing Director, holds a degree in mechanical
engineering from Birla Institute of Technology &
Science (BITS), Pilani. He has also attended
executive education programmes at London
Business School and Swedish Institute of
Management, Stockholm. He has experience in
leading businesses in different sectors such as
power, natural resources, metals, mining etc. In the
past, he has served as Managing Director of ABB
India Limited and also as Chief Executive Officer of
Vedanta Resources Plc.

Mr N S Sekhsaria, Chairman, is the founder
promoter of Ambuja Cements. He was invited to join
the ACC board in 1999. He assumed position of
Chairman of the Board in 2006. Mr Sekhsaria is one
of the most admired industrialists in the country. He
has set solid benchmarks in manufacturing,
management, marketing efficiency and corporate
social responsibility in the Indian cement industry.
He holds a Bachelor's Degree with honours and
distinction in Chemical Engineering from the
University of Bombay.

Mr Paul Hugentobler, Deputy Chairman, holds a
degree in civil engineering from the ETH, Zurich,
and a degree in economic science from the
University of St. Gallen. He joined Holcim Group
Support Ltd in 1980 as Project Manager. He served
as a member of the Executive Committee of Holcim
since January 2002. He also serves as Vice
Chairman of Ambuja Cements.

Risk Analysis
Please see Risk Matrix table on page 7

Sector: In the last decade, cement demand in the
country has grown at about 1.2 times the GDP
growth. This was on the back of the housing and
construction boom in the Indian economy. However,
the Indian cement industry has been witnessing
some sluggishness over the last couple of years on
account of slowing demand, excess cement capacity
and rising operating costs. The slowdown in the
economy and high operating costs continue to pose
a challenge. However, the long term prospects of
the industry remain positive given the low per
capacity consumption of cement.

While cement demand is likely to remain subdued in
the medium term, we expect demand to grow at
around 7-8% per annum in the long term. Taking
both these factors into account, we assign a
medium-risk rating to the stock on this parameter.

Company standing: ACC, now a Holcim Group
Company is one of the leading domestic cement
players. The company is led by a management team
that has some note worthy achievements to its
credit. The company has been successful in its
measures to improve efficiency and has also exited
some loss-making non-cement businesses. Post the
Holcim acquisition, ACC has benefited from the
MNC's expertise. Given the presence of stalwarts on
the companys board, the company is expected to
further improve efficiency and consistency in its
performance. We thus, assign a strong rating to the
company on this parameter.

31 May, 2013

ACC Ltd. Page 5 of 10
Sales: ACC generated average standalone
revenues of Rs 87.2 bn over the last five years. In
CY12, the company reported sales of Rs 111.3 bn.
Based on the company's size of sales we assign a
medium-risk rating of 6 to the stock on this

Operating margin: Operating margin is a
measurement of what proportion of a company's
revenue is left over after paying for variable costs of
production such as raw materials, wages, and sales
and marketing costs. A healthy operating margin is
required for a company to be able to pay for its fixed
costs, such as interest on debt. The higher the
margin, the better it is for the company as it indicates
its operating efficiency. While ACCs average
operating margins over the last five years have
averaged around 22%, the margins dropped down to
about 18% in CY11 and CY12. We thus assign a
rating of 5 on this parameter.

Long term EPS growth: Owing to the drop in profit
margins in recent couple of years, the company's
EPS growth over the last five years has been in
negative territory. We expect the earnings
(normalized) to grow by 14% annually over the next
three years. We have assigned a high-risk rating of
2 to the stock on this parameter.

Return on capital invested (ROIC): ROIC is an
important tool to assess a company's potential to be
a quality investment by determining how well the
management is able to allocate capital into its
operations for future growth. A ROIC of above 15%
is considered decent for companies that are in an
expansionary phase. ACCs average ROIC over the
last five years has been about 22.8%. As such, we
have assigned rating of 5 to the stock on this

Dividend payout: A stable dividend history inspires
confidence in the management's intentions of
rewarding shareholders. The average payout ratio of
ACC has been 40.3% over the past five years. Thus,
the rating assigned on this parameter is 7.

Promoter holding: A larger share of promoter
holding indicates the confidence of the people who
run it. We believe that a greater than 40% promoter
holding indicates safety for retail investors. At the
end of the March 2013, the promoter holding in the
company stood at 50.3%. We have assigned a low-
risk rating of 7 to the stock.

FII holding: We believe that FII holding of greater
than 25% can lead to high volatility in the stock
price. The FII holding in the company at the end of
March 2013 stood at 20%. Therefore, the rating
assigned is 4.

Liquidity: The past 52-weeks average daily volume
of the stock on the BSE and NSE combined was
351,140 shares, which indicates that the stock has
adequate liquidity. Thus, the rating assigned is 7.

Current ratio: ACCs average current ratio during
the last five years has been 0.8 times. In fact, the
company has consistently had negative working
capital. In our view, this reflects that the company
has good bargaining power with its vendors and
customers. Hence, we assign a low-risk rating of 7.

Debt to equity ratio: A highly leveraged business is
the first to get hit during times of economic
downturn, as companies have to consistently pay
interest costs, despite lower profitability. We believe
that a debt to equity ratio of greater than 1 is a high-
risk proposition. ACCs average debt to equity ratio
over the last five years has been about 0.1. In fact,
currently the company has almost negligible debt on
its books. Considering these factors we have
assigned a low-risk rating of 9 to the stock.

Interest coverage ratio (PBIT/Interest payment): It
is used to determine how comfortably a company is
placed in terms of payment of interest on
outstanding debt. The interest coverage ratio is
calculated by dividing a company's earnings before
interest and taxes (EBIT) by its interest expense for
a given period. The lower the ratio, the greater are
the risks. ACCs average interest coverage ratio has
been around 25.7 times over the past five years.
The rating assigned on this parameter is, thus, 9.

EV/tonne ratio: Commodity stocks like cement are
valued at their replacement cost, which is the cost of
setting up a cement plant. The EV/tonne (enterprise
value per tonne) ratio is a measure that indicates set
up or replacement cost of the asset in place. Given
its strong balance sheet and dynamic management,
we have valued ACC at Rs 7,814 per tonne. Based
on our CY15 estimates, the stock is trading at a
valuation of Rs 4,864 per tonne. As such, we have
assigned a medium rating of 6 to the stock on this

Considering the above analysis, the total ranking
assigned to the company is 74, which on a
weighted basis, stands at 6.1. This makes the
stock a medium risk investment from a long-term

31 May, 2013

ACC Ltd. Page 6 of 10
Valuation rationale
Commodity stocks like cement are valued at their replacement cost, which is the cost of setting up a cement
plant. The EV/tonne (enterprise value per tonne) ratio is a measure that indicates set up or replacement cost of
the asset in place. The replacement cost of cement is about US$ 130 per tonne. Given its strong balance sheet
and dynamic management, we have assigned an upper EV/tonne band of Rs 7,814 per tonne from CY15

At the current price of Rs 1,219, the stock is trading at an EV/tonne of about Rs 4,864 based on our CY15
estimates. That leaves us with point to point upside 46% (about 16% on a CAGR basis). As such, we
recommend investors to Buy the stock from a 3 year perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside
some safe cash. Also, within your overall exposure to equities please ensure that you broadly follow our
suggested asset allocation (explained at the end of the report) and that no single stock comprises more than 5%
of your portfolio.
Standalone (Rs m) CY11 CY12 CY13E CY14E CY15E
Net sales (Rs m) 94,296 111,305 115,290 133,807 152,520
Net profit (Rs m) 13,253 10,612 14,157 16,530 19,394
EPS (Rs) 70.6 56.5 75.4 88.0 103.3
Price to earnings (x) 17.3 21.6 16.2 13.8 11.8
Price to sales (x) 2.4 2.1 2.0 1.7 1.5
Price to book value (x) 3.2 3.1 2.8 2.5 2.2

31 May, 2013

ACC Ltd. Page 7 of 10
Risk Matrix

(Rs m) FY10UA FY11E FY12E FY13E
Sales 124,627 40,124 43,861 47,668
Sales growth (%) 15.4% -67.8% 9.3% 8.7%
Operating profit 37,921 11,998 13,234 14,172
Operating profit margin (%) 30.4% 29.9% 30.2% 29.7%
Net profit 27,397 7,699 8,434 9,356
Net profit margin (%) 22.0% 19.2% 19.2% 19.6%
No of shares 91.7 91.7 91.7 91.7
EPS 298.8 84.0 92.0 102.0

Net fixed assets 18,290 22,735 27,152 29,476
Current assets 11,642 5,944 6,017 8,147
Investments 63,248 63,248 63,248 63,248
Total assets 93,181 91,926 96,417 100,870

Current liabilities 11,351 5,615 5,891 6,206
Net worth 71,454 75,934 81,150 87,288
Total debt 10,376 10,376 9,376 7,376
Total liabilities 93,181 91,926 96,417 100,870
Rating accorded
Rating Weightage* (A) Rating# (B) Weighted (A*B)
Sector risk - Medium NA
Company's standing - Strong NA
Performance parameters
Sales 5.0% 6 0.3
Operating margins 5.0% 5 0.3
EPS growth 10.0% 2 0.2
ROIC 10.0% 5 0.5
Technical parameters
Dividend payout 5.0% 7 0.4
Promoter holding 10.0% 7 0.7
FII holding 5.0% 4 0.2
Liquidity 10.0% 7 0.7
Safety parameters
Current ratio 5.0% 7 0.4
Debt to equity ratio 10.0% 9 0.9
Interest coverage ratio 5.0% 9 0.5
EV/ tonne 20.0% 6 1.2
Final Rating** 74 6.1
# Rating has been assigned on the basis of the company's performance over the past five years and expected performance over the next 3 to
5 years. Rating is on a scale of 1 to 10, with 1 indicating highest risk and 10 indicating lowest risk. * 'Weightage' indicates the relative
importance in percentage terms of the parameter. For instance, for an investor, given all the performance metrics, Return on Equity should be
the foremost criteria for buying/not buying stocks. ** The final rating has been arrived at by multiplying the rating/points given on each
parameter with the respective weightage

31 May, 2013

ACC Ltd. Page 8 of 10
Financials at a glance
Standalone (Rs m) CY11 CY12 CY13E CY14E CY15E
Sales 94,296 111,305 115,290 133,807 152,520
Sales growth (%) 22.2% 18.0% 3.6% 16.1% 14.0%
Operating profit 16,901 19,681 18,897 23,919 28,004
Operating profit margin (%) 17.9% 17.7% 16.4% 17.9% 18.4%
Net profit 13,253 10,612 14,157 16,530 19,394
Net profit margin (%) 14.1% 9.5% 12.3% 12.4% 12.7%
No of shares 187.7 187.7 187.7 187.7 187.7
EPS 70.6 56.5 75.4 88.0 103.3

Net fixed assets 65,732 61,752 67,160 71,992 76,234
Current assets 32,872 24,675 32,381 38,446 40,845
Current & non-current investments 16,250 25,536 27,536 29,536 41,536
Long term loans & advances 4,479 5,642 5,660 6,676 7,549
Other non-current assets 561 1,658 1,202 1,694 1,761
Total assets 119,893 119,262 133,939 148,343 167,924

Current liabilities 32,773 34,032 40,882 45,546 52,513
Net worth 71,923 73,828 81,388 90,221 101,919
Total debt 5,061 850 850 850 850
Deferred tax liabilities 5,184 5,169 5,169 5,169 5,169
Other long term liabilities & provisions 4,953 5,383 5,649 6,557 7,473
Total liabilities 119,893 119,262 133,939 148,343 167,924

Where StockSelect Fits In...
We recommend that investors should decide their exposure to
equities, which is only one part of the overall investment portfolio, after
they have kept aside some cash. While we are no experts in wealth
management, we believe keeping aside some safe cash is absolutely
necessary. Not only will this cash take care of your liquidity needs, but
it will also come handy during market declines. Particularly when there
will be opportunities to pick up fundamentally strong stocks at cheap
valuations. For some of you this cash component could be 6 months of
usual monthly expenditure, for others 36 months. You need to decide
what amount works for you, and then set it aside. Maybe in a FD, or in
a pure liquid fund. Or maybe just cash at home!
Having decided what portion of your overall portfolio will be in equities, it is time to decide the allocation of stocks
within your equity portfolio.

As your experience will tell you, stock markets tend to be very volatile. And putting too much money in a single
stock or sector can be very risky. That is why we advise our subscribers to have a well-diversified equity portfolio
comprising the appropriate proportion of small cap, mid cap and large cap/ blue-chip stocks. Based on their
relative riskiness, we have created an asset allocation pyramid that can help you in deciding how much money
you should invest in a stock. However, it must be noted that the allocation levels could differ from person to
person depending on the risk appetite.

31 May, 2013

ACC Ltd. Page 9 of 10

In our view, large cap/ blue-chip stocks are the safest of the lot. Because of their large size, they may not grow as
fast as small caps or mid caps. But they are relatively more stable and resilient to negative macroeconomic
developments. This keeps them in good stead over the long term and makes them reliable wealth creators. As
such, we have assigned them a significantly higher weightage. According to us, large cap/ blue chip stocks
should comprise at least 60% of your total equity portfolio. However, a single large cap/ blue-chip should
not form more than 5-6% of your total portfolio. This is to make sure that even if a certain blue chip stock does
not deliver as per expectations, the overall portfolio is not affected to a great extent.

What does 'Closed Position' mean?
StockSelect recommendations are meant to meet the target prices within a time frame of three years. So when
the stock meets target price or completes the time frame we 'close the recommendation'. However, since we keep
reviewing our assumptions and estimates for the stock even in the interim, the view or target price on the stock
may warrant a change. This could be a revision upwards or downwards. In such cases, if the previous
recommendation on the stock is no longer valid we close that recommendation. So we essentially close
recommendations either by giving a Sell view or putting out a changed view.

How to read the returns calculations?
For positions that are not closed returns are calculated from date of recommendation till date.
For closed positions, there can be two types of calculations.
Assuming we initially gave a Buy on a stock with no subsequent recommendations on the same stock. In
that case the calculation is fairly simple. The returns shown in this case is simply the change in stock
price from the date of recommendation till the date on which the position was closed.

Now let us take a case where we initiated with a Buy (1st position) and subsequently came with another
recommendation (2nd position) on the same stock. Let us assume that the subsequent recommendation
was also a buy.

In such cases, the return calculation depends on whether the 1st position is closed or not. If the first
position is closed before we reiterate buy then the return on the first position will be calculated as shown

However, if 1st position was not closed before we reiterated buy, then the return calculation is from the
earlier buy recommendation till the date on which the position was closed. Basically where we have
reiterated view on a stock we try to show cumulative returns. The same logic applies with Hold
recommendations as well.
Now let us look at Sell recommendations. There can be two situations here.
If there is no recommendation subsequent to the Sell recommendation we show maximum drop in stock
price from date of sell recommendation till date.
If the Sell recommendation is followed up by another recommendation, we show maximum drop in stock
price between the two recommendation dates.
Basically we have tried to cover all hypothetical instances in this note that may help you better understand the
return calculations and closed positions of our recommendations. If you have any query pertaining to it please do
write in to us for further clarifications.

31 May, 2013

ACC Ltd. Page 10 of 10

Equitymaster Agora Research Private Limited. All rights reserved.
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research
Company. The Author does not hold any share in the company/ies discussed in this document. Equitymaster may hold
shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be
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