ACC Ltd (Q2CY20) - BUY (Target Rs1,532, Upside 15%) - YES Securities

Led by COVID inflicted lockdown measures with April 2020 being a washout month for the industry, we had expected volumes for Q2CY20 to de-grow by 33.6% y/y to 4.78 MT (official volumes have not been disclosed by the company). However, ACC delivered exceptional operating performance. On the back of strong pricing tailwinds especially for the Southern exposure of ACC and optimization of freight and misc. expenses, company posted an EBITDA of Rs 5.25 bn (-32.9% y/y) - 19%/9% above consensus/YES-Sec est. respectively. We have raised EBITDA estimates by 29.3%/6.1% for CY20E/CY21E respectively due to robust pricing scenario and phenomenal pick-up of demand post relaxation of lockdown measures. Currently ACC is trading at EV/EBITDA of ~8.4x and EV/te of $82 on CY21E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 1,532/share (implied EV/EBITDA multiple of 10x on CY21E). We have a BUY rating for the stock.

Highlights

- Led by COVID inflicted lockdown measures with April 2020 being a washout month for the industry, we had expected volumes for Q2CY20 to de-grow by 33.6% y/y to 4.78 MT (official volumes have not been disclosed by the company).

- Net sales for the quarter came in at Rs 26.02 bn (-37.3% y/y) - 3.5%/5.1% miss to consensus/YES-Sec est. respectively.

- However, ACC delivered exceptional operating performance. On the back of strong pricing tailwinds especially for the Southern exposure of ACC and optimization of freight and misc. expenses, company posted an EBITDA of Rs 5.25 bn (-32.9% y/y) - 19%/9% above consensus/YES-Sec est. respectively.

- Operating margins stood at 20.2% (+132 bps y/y) vs. our est. of 17.6%.

- PAT for the quarter was Rs 2.7 bn, which declined by 40.5% y/y.

Our View

- We have raised EBITDA estimates by 29.3%/6.1% for CY20E/CY21E respectively due to robust pricing scenario and phenomenal pick-up of demand post relaxation of lockdown measures.

- Outgo towards capex has been muted for ACC - at Rs 1.76 bn for H1CY20. Accordingly, we have cut our capex estimates for CY20-CY21 period from Rs 40 bn to Rs 25 bn and expect expansion of 5.9 MTPA capacity to be commissioned by CY22-23E. Accordingly, we expect net cash of ACC to increase from Rs 46.5 bn to Rs 57.1 bn over CY19-CY21E.

Valuation

- Currently ACC is trading at EV/EBITDA of ~8.4x and EV/te of $82 on CY21E. Taking an average of EV/EBITDA and DCF derived values, we have a target of Rs 1,532/share (implied EV/EBITDA multiple of 10x on CY21E). We have a BUY rating for the stock.

Risk to our call

- In a scenario of second wave of COVID, our volume and pricing estimates would be severely hampered.

Shares of ACC LTD. was last trading in BSE at Rs.1330.05 as compared to the previous close of Rs. 1315.7. The total number of shares traded during the day was 41868 in over 2689 trades.

The stock hit an intraday high of Rs. 1334.65 and intraday low of 1314.9. The net turnover during the day was Rs. 55489531.

Source : Equity Bulls

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