Maintain BUY on ACC Limited - Strong cost controls cushion earnings - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

ACC Limited (Q1FY21 Results Review) - Strong cost controls cushion earnings. Maintain BUY

ACC delivered earnings beat as sharp reduction in fixed opex moderated the impact of COVID-led revenue loss. Consolidated revenue/EBITDA/APAT fell 37/33/41% YoY to Rs 26.02/5.25/2.71bn respectively in 2QCY20. While cement sales fell 34% YoY, NSR remained flattish YoY (+11% QoQ). A weak 2Q, pulled down 1HCY20 consolidated revenue/EBITDA/APAT by 24/15/16% YoY to Rs 61.04/11.12/5.94bn respectively. We expect the volume decline to slow down in 2HCY20, leading to 15% volume decline in CY20. Healthy pricing, benign fuel prices, and strong cost controls should aid 4% EBITDA CAGR during CY19-22E (despite fall in CY20E). We maintain BUY with a revised target price of Rs 1,610/sh.

Results highlights: A sharper volume fall in south and Maharashtra markets drove 34% YoY total volume decline in 2QCY20. Healthy pricing (+11% QoQ) kept NSR flat YoY. Unitary opex also fell 3% YoY on all round cost reduction - a sharp cut in overheads and discretionary fixed costs, and lower freight & input costs. Thus, unitary EBIDTA expanded 11% YoY to Rs 1,166/MT, cushioning the impact of a sharp revenue decline. During 1HCY20, volume/NSR fell 23/1% YoY. However, opex cooled off 4%, driving up unitary EBITDA by 14% YoY to Rs 972/MT. Thus, in 1H EBITDA/APAT fell 15/16% YoY on a weak 2Q. ACC spent Rs 3.2bn towards fixed assets in 1HCY20 (for the ongoing expansions). Net cash rose 4% in 1H to Rs 48.4bn.

Outlook: We expect volume decline to slow down in 2HCY20E. Further, we build in lower fixed costs, in line with the trend seen during 1HCY20. We expect fuel and packing cost to remain low, benefiting from lower petcoke and crude prices. Subsequently, we upgrade EBITDA estimates for CY20/21/22E by 10/9/6% respectively. We maintain BUY with a revised target price of Rs 1,610/sh (10x Jun'22E consolidated EBITDA).

Shares of ACC LTD. was last trading in BSE at Rs.1382.75 as compared to the previous close of Rs. 1330.05. The total number of shares traded during the day was 167260 in over 11478 trades.

The stock hit an intraday high of Rs. 1422.95 and intraday low of 1364.05. The net turnover during the day was Rs. 233183161.

Source : Equity Bulls

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