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Maintain BUY on ACC - Mixed performance - HDFC Securities

Posted On: 2021-10-21 09:13:58 (Time Zone: IST)

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities and Mr. Keshav Lahoti, Institutional Research Analyst, HDFC Securities

We maintain our BUY rating on ACC with an unchanged target price of INR 2,670/share. In Q3CY22, its consolidated revenue/EBITDA/APAT rose 6/6/24% YoY to INR 37.5/7.12/4.5bn respectively. While cement volume rose a modest 1% YoY, realisation fell a modest 1% QoQ (+2% YoY). While input cost jumped INR 200/MT QoQ, it rose a modest INR 50/MT YoY, benefitting from project Parvat savings. Thus, unitary EBITDA stood flattish YoY at INR 1,060. Rebound in RMC profit also boosted total EBITDA YoY.

Q3CY22 performance: Cement sales volume rose only 1% YoY to 6.57mn MT (-4% QoQ), despite strong demand recovery. NSR fell a modest 1% QoQ (+2% YoY), which moderated the impact of weaker offtake. Opex rose 3% QoQ, mainly driven by rising energy costs. Input cost rose ~150/MT QoQ. It has been able to improve its cost efficiency measures under project 'Parvat', thus restricting YoY input cost inflation at INR 50/MT YoY. Unitary EBITDA cooled off 16% QoQ to INR 1,060/MT (-1% YoY). RMC volume/revenue rose 46/55% YoY on strong demand revival and higher cement prices. RMC EBITDA rebound to INR 159mn vs loss of INR 233mn YoY, boosting the overall profitability.

Cost controls and ESG in focus: ACC became the first Indian company in the construction sector to sign the Net Zero Pledge - Business Ambition for 1.5C. It is a commitment towards the 2030 intermediate targets to reduce greenhouse gas emissions, as approved by the Science Based Target initiative (SBTi). It is also working on two WHRS projects Jamul (10MW) and Kymore (14MW). Additionally, three fly-ash dryer projects at three locations and fuel flexibility projects at three locations are underway to reduce its costs as well as carbon footprint.

Expansion update and outlook: ACC's IU in MP is on track to come up by Q2CY22 and two related SGUs in UP by Q4CY22. We like ACC for its steady cost reduction-led margin improvement. The upcoming expansion will boost volume growth CY22 onwards. We maintain our earnings estimates and BUY rating with an unchanged target price of INR 2,670/share, valuing it at 12x its Sep'23E consolidated EBITDA.

Shares of ACC Limited was last trading in BSE at Rs. 2245.50 as compared to the previous close of Rs. 2304.25. The total number of shares traded during the day was 23166 in over 2349 trades.

The stock hit an intraday high of Rs. 2330.00 and intraday low of 2234.00. The net turnover during the day was Rs. 52757120.00.

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