ACC - Enhancing profitability via 'Parvat' - ICICI Securities

ACC's flagship efficiency optimisation program 'Parvat' could deliver sustainable cost reduction of at least Rs150/te (~20% of CY19 EBITDA/te) from CY20E by unlocking efficiencies in procurement and supply chain and reducing distribution costs, in our view. Besides, MSA with ACEM could gain improved traction under Neeraj Akhoury, MD&CEO of ACEM (also India-Head, LafargeHolcim), and deliver targeted synergies of 3-5% of PBT. Volumes from ACEM's Marwa-Mundwa expansion by Q1CY21E could also be serviced by ACC, thus providing additional volume visibility. We maintain our CY20-CY21E EBITDA (which are ~15% ahead of consensus) with an unchanged target price of Rs1,625/share (9x Mar'22E EV/E). ACC currently trades at an attractive valuation of 7.7xCY21E EV/E. Maintain BUY.

- ACC's flagship efficiency optimisation programme 'Parvat' initiated in CY19 could deliver sustainable cost reduction of at least Rs150/te (~20% of CY19 EBITDA/te) from CY20E. Nearly 50% of these savings is likely to come via reduction in primary and secondary freight (rationalising C&F agents), higher direct despatches, warehousing cost rationalisation, etc. Balance savings may be equally attributable to manufacturing excellence (via clinker factor reduction, decrease in spare inventory, source mix optimisation) and fixed cost rationalisation (via renegotiating contracts, curtailing few costs). ACC has likely achieved Rs100/te savings till H1CY20E under this programme and the same may increase over the next one year. Besides, ACC is evaluating to set up 70MW WHRS over the next three years which could provide Rs40/te additional savings.

- MSA with ACEM could gain increased traction under the leadership of Neeraj Akhoury, MD&CEO of ACEM (also India-Head, LafargeHolcim), and deliver targeted synergies of 3-5% of PBT. ACC-ACEM likely achieved maximum volume swaps and more than doubled synergies during Jun'20 (up from Rs60-70mn p.m. during H2CY19) via network optimisation, better realisation, to be shared almost equally.

- ACC is likely to maintain market share over the next few years: 1.1mnte grinding unit at Sindri is likely to be operational by Mar'21, while 4.8mnte Ametha expansion may be operational by H2CY22E. Volumes from ACEM's Marwa-Mundwa expansion by Q1CY21E could also be serviced by ACC under MSA, thus, providing an additional volume visibility. Higher exposure to better growth markets of Central / East regions would provide volume support, while firm realisation in South / West regions would provide better profitability in the near term.

- ACC currently trades at an attractive valuation of 7.7x CY21E EV/E- ~30% discount to 10-years average. With improving profitability and return ratios valuation gap versus peers may narrow, in our view. Consensus has raised ACC's CY20-21E EBITDA by ~10% over the past three months and we see upside risk to these estimates. ACC has net cash of Rs47bn (18% of mcap) as of Jun-20, which is likely to increase further over CY20-22E even after factoring in capex of Rs30bn.

Shares of ACC LTD. was last trading in BSE at Rs.1398.1 as compared to the previous close of Rs. 1401.25. The total number of shares traded during the day was 14682 in over 1191 trades.

The stock hit an intraday high of Rs. 1407.3 and intraday low of 1387.3. The net turnover during the day was Rs. 20483740.

Source : Equity Bulls

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