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ACC 2QCY21 Results Review Report - Unitary EBITDA at 12-year high on cost controls - HDFC Securities

Posted On: 2021-07-22 06:48:43 (Time Zone: UTC)

We reiterate our BUY rating on ACC with a revised target price of INR 2,610/share. In Q2CY22, ACC not only gained from healthy realisation across all markets, but also exhibited superior cost controls, which helped beat fuel and diesel price inflation, bolstering unitary EBITDA to a 12-year high of INR 1,235/MT (+10/20% YoY/QoQ). The company continues to focus on many cost reduction programs under the project "Parvat", boosting the margin outlook. Its major expansion in the central region is expected to be commissioned between Q2 and Q4CY22, which bolsters the visibility on volume.

Robust cost controls; cement EBITDA margin soars to a 12-year high: While ACC's consolidated net sales fell 10% QoQ, hit by the lockdown, healthy pricing and cost controls drove up EBITDA/APAT by 1% QoQ each. Despite the impact of the pandemic, the company achieved 80% utilisation. Healthy pricing pulled up cement NSR by 6% QoQ (our estimate +5%). ACC continues to beat cost inflation amid surging fuel/diesel prices - unitary input cost rose a modest 2% QoQ, and freight cost fell 2% QoQ. These moderated the impact of the rising packing cost and negative op-lev and opex rose a modest 2% QoQ. Robust pricing gains, thus, bolstered ACC's cement EBITDA by 10/20% YoY/QoQ to INR 1,235/MT (12-year high!). RMC's contribution to total EBITDA fell to 3% vs 5% QoQ on lower sales and increased cement prices.

Cost control remains in focus: Under the ongoing project "Parvat", ACC is working on improving its clinker factor, energy consumption, and lead distance reduction. The company plans to add 24MW of WHRS by Q2CY22, which would reduce its blended power costs. It is also adding wet flyash dryers at three locations, which will reduce its flyash cost. Over the next 10 years, it plans to increase waste material consumption by 5x. It is also implementing direct dispatches to lower handling costs.

Expansion update and outlook: ACC expects to commission 2.7/1.0mn MT clinker/cement capacity by Q2CY22 and the remaining 2.6mn MT SGUs in UP by the end of CY22. These will drive volume CY23 onwards. Factoring in the robust cost control initiatives, we upgrade our consolidated EBITDA estimates for CY22/23/24E by 11/7/7% respectively. With increased visibility on its upcoming expansion and steady cost reduction-led margin improvement, we upgrade our valuation multiple to 12x its Jun'23E consolidated EBITDA (from 11x earlier). We reiterate BUY with a revised target price of INR 2,610/share.

Shares of ACC LTD. was last trading in BSE at Rs. 2308.55 as compared to the previous close of Rs. 2150.65. The total number of shares traded during the day was 341721 in over 22148 trades.

The stock hit an intraday high of Rs. 2342.95 and intraday low of 2191.9. The net turnover during the day was Rs. 781269776.

Source: Equity Bulls

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