Healthy margins despite weak volumes - 1QCY20 Result Review - ACC - HDFC Securities

During 1QCY20, while ACC's cement volume/consol revenue fell 12/11% YoY on Covid-19 lockdown, lower op costs more than offset this impact. Thus, consol EBITDA/APAT rose 10/31% YoY. We expect the Covid-19 impact to pull down CY20E volumes by 18% YoY. However, we expect falling energy costs to moderate the earnings impact. We maintain BUY on the stock with a TP of Rs 1,440 (10x consolidated Mar'22E EBITDA.

Sharp vol decline pulled down revenues: ACC reported consol rev decline of 11% YoY to Rs 35.02bn. However, EBITDA/PAT grew 10/ 31% YoY resp to Rs 5.87/3.23bn resp. ACC's EBITDA/APAT came in 7/9% higher vs our est. Cement Sales vol declined 12% YoY to 6.6mn MT, mainly led by Covid-19 shutdowns. NSR remained flat YoY (+1% QoQ) at Rs 4,807/MT. Even RMC revenues (11% of total revenues) fell 1% YoY in 1Q.

Lower opex buoyed margin to multi-year high level of Rs 831/MT: Amid flattish NSR, ACC's unitary opex fell 5/5% YoY/QoQ to Rs 3,975/MT. This is led by lower fuel costs, increase in premium cement sales and cost controls. However, owing to lower sales YoY/QoQ, negative op-lev drove fixed costs higher by 5/7% YoY and moderated the benefits. Opex reduction bolstered unitary EBITDA by 27/38% YoY/QoQ to Rs 831/MT (ACC's 8-yr high performance for a Mar-qtr)! ACC adopted new financial lease accounting w.e.f. Jan 2020. This led to lower other expenses by Rs 88.5mn (Rs 13/MT) and Depreciation/Interest expense higher by Rs 72/26.4mn respectively.

EBITDA/APAT up 10/30% YoY on strong margin and lower tax rate: Despite volume decline, strong margin buoyed consol EBITDA/APAT by 10/31% YoY. Eff tax rate of 32% in 1QCY20 vs 42/32% YoY/QoQ further boosted PAT growth.

Valuation and view. We expect the Covid-19 lockdown to adversely impact cement demand in CY20, pulling down ACC's CY20 vol by 18% YoY. We estimate ACC's volume in 2QCY20 to fall 50% YoY, owing to extended lockdown impact during the qtr. Thereafter, we expect demand pick up and ACC's capacity expansions (6mn MT additions expected by early CY22E) to drive 14% volume CAGR during CY20-22E. Falling energy costs should moderate the impact of weak demand in CY20. Thus, we model in unitary EBITDA to sustain around ~Rs 750 during CY20-22E. We maintain BUY on the stock, valuing it at 10x its Mar'22E EBITDA. Our TP implies replacement EV/MT of Rs 6.9bn (similar to its 10-yr historical mean).

Shares of ACC LTD. was last trading in BSE at Rs.1231.1 as compared to the previous close of Rs. 1136.4. The total number of shares traded during the day was 113773 in over 7932 trades.

The stock hit an intraday high of Rs. 1243.35 and intraday low of 1120.1. The net turnover during the day was Rs. 134446715.

Source : Equity Bulls

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