ACC - Volumes / profitability to improve - ICICI Securities

ACC Ltd's Q4CY20 EBITDA at Rs7bn (up 30% YoY) was in-line with our estimates. Blended EBITDA/te (including RMC) grew 33% YoY to Rs900/te. 1.4mnte Sindri grinding unit got commissioned in Jan'21, while 2.6mnte Ametha expansion may commission by Jun'22. ACC's cost efficiency programme 'Parvat' targeting cost savings of ~Rs200/te and increased traction in MSA with ACEM (which would also provide incremental volumes) will drive sustainable improvement in its profitability, in our view. Factoring in better margin, we increase our CY21E-CY22E EBITDA by ~4% and raise our target price to Rs2,050/share (earlier: Rs1,830) based on 9x FY23E EV/E on half-yearly rollover. Valuation at <8xCY22E EV/E or US$100/te is attractive, given improving profitability/return ratios and volume growth visibility. Maintain BUY. Key risks lower demand / pricing.

- Revenue grew 2% YoY to Rs40.7bn (I-Sec: Rs39.5bn): Grey cement realisation increased 8% YoY (flat QoQ) to Rs4,881/te mainly led by a sharp price increase in the South. Volumes including clinker sales declined 3% YoY to 7.78mnte owing to capacity constraint as it operated at ~94% utilisation in Q4CY20. 1.4mnte Sindri grinding unit got commissioned in Jan'21, while 2.6mnte Ametha expansion may commission by Jun'22 and balance 2.2mnte UP grinding unit will be commissioned by Jun'23. Management expects increased government thrust on infrastructure, coupled with improved rural housing demand, will drive healthy demand.

- RMC revenue declined 20% YoY to Rs3.1bn owing to 21% YoY lower volumes as urban centres are still witnessing gradual recovery. EBIT margin declined to 14.3% vs 17.5% YoY. Other operating income fell 13% YoY / grew 13% QoQ to Rs787mn.

- Cement EBITDA/te increased 42% YoY to Rs828/te, while blended EBITDA/te (including RMC) grew 33% YoY to Rs900/te. Cement cost/te rose 5% QoQ / 3% YoY to Rs4,153/te. Raw material plus power and fuel cost/te rose 3.6% QoQ (1% down YoY) on increasing fuel costs offset by optimisation of source mix and improved operational efficiencies. Nearly 25MW WHRS may be operational by Dec'21. Freight cost/te rose 2% QoQ and 7% YoY due to increasing diesel costs, though partially offset by higher direct deliveries, warehouse space optimisation and network efficiencies. Other expenses and employee costs/te rose sharply 11% QoQ and 6% YoY on normalisation of fixed costs and year-end provisioning (need not necessarily pertaining to quarter).

- Exceptional item included Rs1.76bn write-off towards impairment of assets at Madukkarai unit. Similarly, the company made provision of Rs1.3bn towards expected credit loss on outstanding government incentives due to time value of money, even though there exists no risk on recoverability of the same, as per management. Company adopted income tax provisioning at reduced rates as per relevant Act and reversed Rs2.7bn worth of deferred taxes.

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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