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Strong realisations led the beat; Maintain BUY
ACC posted PAT ahead of our/consensus estimates by 10%/18% on the back of stronger than expected realisations. Realisations rose by 11% (Rs519/t) QoQ/+8% (Rs374) YoY against our estimate of Rs376 increase. Volume were flat YoY against our estimate of 2% fall.
Demand remained tepid across the sectors due to liquidity issues, weaker sentiments and lower govt spending. We do expect some revival in demand post monsoons on the back of revival in govt spending. Nevertheless, AllIndia demand growth would stuck in the range of 5-6% for FY20E. In the backdrop of weak demand, we expect industry to maintain tight price discipline to support the earnings. Lower coal and diesel prices would aid cost, partly offset by lower operating advantage.
Driven by attractive valuations, we maintain BUY with TP of Rs1,800 assigning EV/EBITDA of 11.5x CY20e. Lack of capacity growth and lower margins have widened discount on valuations to ~30% over its peers. These structural issues would limit the returns in the stock.
* Cement volume better than expectation: Cement sales volume above our estimates at 7.2mnt (PLe: 7.1mn, flat YoY) on the back of strong push in East region. RMX Volumes witnessed 11% YoY (on high base of 22% YoY) due to contribution from eight new plants added during the quarter.
* Realisations drove the show: Cement realisations came above our estimates at Rs5,210 (PLe:Rs5,066), +11% QoQ/Rs519 (↑7.7% YoY/Rs374). Total costs/t rose by 6.5% YoY/Rs284 to Rs4,676 (Rs110 above our estimates) due to higher power and fuel cost (led by higher premium on e-auction coal and coal costs) partially offset by lower raw material costs. EBITDA/t rose 18% YoY to Rs960 (PLe:Rs923). Solely driven by growth in margins, EBITDA grew 18% to Rs6.9bn (PLe:Rs6.5bn). Adj PAT rose 27% YoY at Rs4.6bn (PLe:Rs4.1bn), aided by 28% increase in other income.
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