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

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

During 3QCY20, ACC reported consolidated net sales/EBITDA/APAT growth of 0/21/20% YoY to Rs 35.37/6.71/3.64bn respectively (ahead of our estimates of Rs 34.52/5.71/2.98bn). Buoyancy in retail demand, lower fuel costs and continued cost controls boosted earnings rebound. The earning beat (vs our estimate) is on account of better than expected operating cost reduction. While we expect retail sales to accelerate further, non-trade should also recover going ahead, boosting volume outlook. We are also enthused by ACC's continued surprise on fixed cost controls, which is driving margin expansion. Subsequently, we upgrade estimates and maintain BUY with a higher target price of Rs 1,820/share (10x Sep'22E consolidated EBITDA).

Results highlights: Robust retail demand amid weak non-trade demand drove up 3Q volumes 1% YoY. NSR also remained healthy YoY (+3.5%) as it fell a modest 3% QoQ (seasonal correction). Additionally, ACC's unitary opex fell 1% YoY on account of continued fixed cost reduction. These buoyed unitary EBITDA by 27% YoY to Rs 1,071/MT, driving earnings rebound. Trade with Ambuja under Material Supply Agreement (MSA) is on the rise - the purchase of traded goods increased to 6.5% of net sales vs 2.5/6% YoY/QoQ. RMC volumes fell down 43% YoY on subdued non-trade demand.

Outlook: We expect ACC's profitability to continue to benefit from cement demand recovery and its strong focus on all-round cost controls. Subsequently, we increase consolidated EBITDA estimates for CY20/21/22E by 6/4/4% respectively. We maintain BUY with a revised target price of Rs 1,820/share (10x Sep'22E consolidated EBITDA).

Shares of ACC LTD. was last trading in BSE at Rs.1578.85 as compared to the previous close of Rs. 1562.8. The total number of shares traded during the day was 189795 in over 11658 trades.

The stock hit an intraday high of Rs. 1622 and intraday low of 1561.75. The net turnover during the day was Rs. 300950358.

Source : Equity Bulls

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