ACC reported a modest performance beat despite elevated input costs, mainly supported by the resilient realizations and cost efficiency measures. EBITDA (excluding other operating income) grew merely 3% YoY to Rs6.16bn (-23% QoQ) and was slightly higher than our estimate of Rs6bn, while cement EBITDA/tonne stood at Rs914 in the quarter vs. Rs918 in 3QCY20 and Rs1,145 in 2QCY21. Sales volume grew merely by 1.2% YoY to 6.57mnT (-3.9% QoQ) vs. our estimate of 6.75mnT. Further, the average realization/tonne remained steady at Rs5,175 (+1.7% YoY and -1.6% QoQ), which was Rs75/tonne higher than our estimate. Operating cost/tonne hardened by ~4.7% YoY and 5.1% QoQ to Rs4,623, as against an estimate of Rs4,486. Notably, the input cost/tonne (RM+P&F) rose significantly by +7% YoY and +10% QoQ to Rs2,149, mainly led by a sharp increase in fuel and input costs. Surprisingly, freight cost/tonne contracted by 1% YoY and 2.6% QoQ to Rs1,317. Net profit increased by 24% YoY to Rs4.49bn (-20% QoQ), ahead of our estimate of Rs4.2bn, and was mainly aided by the higher other income and lower taxes. While the ongoing expansions (2.7mnT clinker and 1mnT cement in Ametha, MP and 3.8mnT SGU in UP) ensure a sustainable growth visibility in the ensuing fiscals, the company's commitment on green energy by way of setting up WHRS (10MW at Jamul and 14MW at Kymore) are likely to offer more cushion against a sharp rise in fuel prices. We raise the EBITDA estimate by 10%/8%/13% for CY21E/CY22E/CY23E, respectively to factor the superior realizations and operating efficiencies. Keeping the target multiple unchanged for CY23E at 12x, we maintain our BUY rating with a revised 12-month target price of Rs2,685.
Cement Sales Volume Sees Modest Improvement
The heavy rainfall in various parts of its key markets, especially in the Eastern region, and a high base weighed on the sales volume, which led ACC to record a sharp under-performance in volume compared to the industry. The company recorded a mere 1.2% YoY growth in cement sales volume to 6.57mnT. However, a sustained traction in projects segment aided it to record a sharp 46% YoY growth in RMC sales volume to 0.68mn cubic meters.
Resilient Realizations and Savings on Freight Aid Performance
Despite a sharp increase in input cost/tonne (+7% YoY and +10% QoQ) that was mainly led by higher fuel costs, ACC managed to report a better-than-expected operating performance, mainly on account of steady realizations and savings in freight costs. Average realizations/tonne declined modestly by 1.6% QoQ to Rs5,175, against the industry's sequential drop of 3%. Further, the company's continued efforts on network optimization and improvement in lead distance enabled it to post a 2.6% sequential decline in freight cost/tonne, despite the sharp rise in diesel prices.
Outlook and Valuation
The better-than-expected realizations and continued cost efficiencies, despite elevated input costs, aided in the performance beat during the quarter. ACC has been working on improving cost efficiencies through various ways and these have started to pay off. Going forward, the commissioning of new capacities and further improvement in operating efficiencies by way of setting up WHRS at various plants should aid it to witness a sustainable growth. Keeping the target multiple unchanged for CY23E at 12x, we maintain our BUY rating with a revised 12-month target price of Rs2,685. Notably, we have shifted to a 1-year target price, from the earlier 2-year. As we enter 4QCY21, instead of rolling forward the valuation, we maintain it based on CY23E earnings and shift to a 1-year target price of Rs2,685.
Link to the report
Shares of ACC Limited was last trading in BSE at Rs. 2263.20 as compared to the previous close of Rs. 2245.50. The total number of shares traded during the day was 217924 in over 15006 trades.
The stock hit an intraday high of Rs. 2357.95 and intraday low of 2222.00. The net turnover during the day was Rs. 498092122.00.