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ACC - Strong execution - third time in a row - ICICI Securities

Posted On: 2020-10-19 22:14:46


ACC continue to surprise positively for third consecutive quarter with Q3CY20 EBITDA increasing 21% YoY to Rs6.7bn - higher than our / consensus estimates. Volumes grew 1.4% YoY vs our estimate of 2% YoY decline; while realisation grew 2.8% YoY (I-Sec: 2% YoY). Cement EBITDA/te increased 25% YoY to Rs1,015/te; while blended EBITDA/te grew 19% YoY to Rs991/te. ACC's cost efficiency programme 'Parvat' which seems to be targeting cost savings of Rs150-200/te and increased traction in MSA with ACEM would drive sustainable improvement in ACC's profitability, in our view. Factoring-in better margin, we increase our CY20E-CY21E EBITDA 6-7% and raise our target price to Rs1,830/share (earlier: Rs1,625) based on 9x Sep'22E EV/E on half-yearly roll-over. Maintain BUY.

- Revenues stood flat YoY at Rs34.7bn (I-Sec: Rs33.3bn): Grey cement realisation increased 2.8% YoY (declined 3.4% QoQ) to Rs4,877/te mainly led by strong low double-digit increase in South. Cement prices have further increased by Rs10-20/bag across most regions w.e.f. Oct'20 mainly to mitigate recent cost increases and average pan-India prices are now up ~6% YoY. Volumes including clinker sales increased 1.4% YoY (broadly in-line with industry average) to 6.77mnte owing to improved demand in retail and rural segments, with gradual pick-up in demand from commercial and industrial segments too. Management expects increased government thrust on affordable housing and infrastructure, and coupled with improved rural housing demand, would drive cement demand in the near term.

- RMC revenues declined 41% YoY to Rs2bn led by 51% YoY decline in volumes on continued lockdown in urban centres. RMC EBITDA loss stood at Rs160mn vs positive EBITDA of Rs154mn in Q3CY19. Other operating income increased 9% YoY / declined 15% QoQ to Rs698mn.

- Cement cost/te declined 1.5% YoY / 2.9% QoQ to Rs3,965/te. Purchase of third-party products increased sharply from Rs0.9bn to Rs2.3bn mainly led by MSA with ACEM. Excluding these, raw material plus power and fuel plus freight cost/te declined 6% YoY (flat QoQ) on optimisation of source mix, better supply-chain management, higher usage of AFR in the fuel mix and improved operational efficiencies. Share of blended cement has also increased 300bps YoY to 91% in Q3CY20. Freight cost/te declined 10% YoY (rose 3.4% QoQ) owing to higher direct deliveries, warehouse space optimisation, and network efficiencies. Other expenses/te including employee costs declined 19% YoY (4% QoQ) on stricter control in discretionary fixed costs, negotiation-led savings, and rationalisation of various cost items. PAT increased 20% YoY to Rs3.6bn.

- Other key highlights: a) ACC has appointed Mr. M R Kumar, Chairman of LIC as an Additional Director on the board of the company. LIC holds 4.95% stake in ACC as of Sep'20 and b) technology know-how fees paid @1% of sales to the LafargeHolcim would be due for renewal by Jan'21 after a gap of three years.

Shares of ACC LTD. was last trading in BSE at Rs.1562.8 as compared to the previous close of Rs. 1561.4. The total number of shares traded during the day was 53073 in over 3247 trades.

The stock hit an intraday high of Rs. 1574 and intraday low of 1539. The net turnover during the day was Rs. 82560138.


Source: Equity Bulls

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