ACC - Focusing on profitable growth - ICICI Securities

We hosted Neeraj Akhoury, CEO India, LafargeHolcim, Sridhar Balakrishnan, MD and CEO of ACC and Yatin Malhotra, CFO on company's first ever earnings call. Key takeaways include: a) Management remains optimistic on demand growth led by increased government thrust on infrastructure and strong rural housing demand; b) company expects to maintain market share - 2.6mnte Ametha expansion may commission by Jun'22; c) it is on track to achieve targeted cost savings of ~Rs200/te via cost efficiency programme 'Parvat' - 25MW WHRS is expected to commission by Dec'21; d) it expects increased synergies (both in terms of volumes and profitability) via MSA with ACEM. We maintain BUY with target price of Rs2,050/share based on 9x FY23E EV/E. Valuation at <8xCY22E EV/E or US$100/te is attractive, given improving profitability/return ratios and volume growth visibility. Key risks: Lower demand / pricing.

- Management remains optimistic on demand growth led by increased government thrust on infrastructure and strong rural housing demand. 1.4mnte Sindri grinding unit got commissioned in Jan'21. 2.7mnte clinker unit at Ametha along with 1mnte grinding unit and 1.6mnte grinding unit at Tikaria is likely to commission by Jun'22, and balance 2.2mnte UP grinding unit may commission by Jun'23. The company expects to maintain market share via capacity addition in high-growth markets of Central and East regions.

- Company is on track to achieve targeted cost savings of ~Rs200/te via cost efficiency programme 'Parvat'. Nearly 50% of these savings may 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, improved operational efficiencies) and fixed cost rationalisation (via renegotiating contracts, curtailing few costs). 25MW WHRS at Jamul may be operational by Dec'21. ACC is likely to have achieved 50-60% of the targeted savings till date, in our view.

- Expects increased synergies via MSA with ACEM: Cement / clinker swaps with ACEM is gaining traction with volumes and synergies likely more than doubling YoY in CY20. Commissioning of 4.5mnte Marwa Mundra expansion of ACEM in CY21 may also provide incremental volumes to ACC. Besides, network optimisation and better realisation with change in market mix will also add to improved profitability.

- ACC generated OCF of Rs24bn in CY20 and net cash increased by Rs13.5bn to Rs59bn after incurring capex of Rs7.5bn. Net cash is likely to increase further to Rs77bn (23% of mcap or Rs410/sh) by CY22E even after factoring in capex of Rs33bn over CY21-22E. Valuation at <8xCY22E EV/E or US$100/te is attractive, given improving profitability/return ratios and volume growth visibility, in our view.

Shares of ACC LTD. was last trading in BSE at Rs.1785.3 as compared to the previous close of Rs. 1766.45. The total number of shares traded during the day was 51259 in over 2714 trades.

The stock hit an intraday high of Rs. 1797.95 and intraday low of 1767.35. The net turnover during the day was Rs. 91501424.

Source : Equity Bulls

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