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Subdued qtr; annual OCF at 10-yr high
We maintain BUY on ACC with a revised TP of Rs 1,780 (11x its CY21E consolidated EBITDA, implying EV of USD 140/MT). While ACC closed CY19 with subdued 4QCY19 performance in the cement segment, working capital release boosted its CY19 OCF to a decade high!
HIGHLIGHTS OF THE QUARTER
* During 3QCY19, consolidated net sales/EBITDA/APAT rose 4/6/7% YoY to Rs 40.60/5.41/2.73bn resp. While EBITDA came in-line our est PAT came in 9% lower vs our est on higher capital charges.
* Subdued realization and margins: Sales volume rose 4% YoY to 7.8mn MT, thus boosting utilisation to 98% vs 94% YoY. NSR fell 5% QoQ thus flattening NSR YoY. However, even opex came in flat YoY/QoQ, thus leading to unitary EBITDA of Rs 603/MT (down 4% YoY, 9% lower vs our est).
* Strong RMC results: However, despite miss in cement biz, overall EBITDA came in-line as its RMC segment earnings soared - vol/ rose 8% YoY and EBITDA surged 91% YoY to Rs680mn (12% of total EBITDA vs 7% YoY).
* CY19 performance: Amid lack of capacity, vol grew a modest 2% YoY. Robust pricing in 1H drove 3% NSR gain and pulled up unitary EBITDA by 12% YoY to Rs 782/MT (its 7-yr high). Even RMC EBITDA rose 12% YoY and its share in total EBITDA remained flat at 6%. Thus, consol rev/EBITDA/APAT grew 6/14/17% YoY in CY19.
* Robust cashflows: Aided by higher profits and working capital release reduction, ACC’s OCF rebound to 10-yr high of Rs22.5bn. Its CY18 OCF was at 13-yr low.
* However, capex spend remained low and flat for 4th consecutive year at ~Rs 5bn, even though ACC plans to commission 6mn MT capacity by end CY21E. The co remained confident of executing these projects in time, implying capex to accelerate in CY20-21E.
We trim our EBITDA est for CY20/21E by 9/1% each factoring in weak pricing impact. Despite weak pricing, we expect ACC’s margin to sustain at ~Rs 800/MT levels driven by energy cost tailwinds. The upcoming expansions of 6mn MT in central and east markets will drive volume growth CY22 onwards. Our EBITDA est for ~5% lower CY20/21E are We maintain BUY with a TP of Rs 1780 (10x CY21E EBITDA), implying EV of USD 140/MT. We continue to apply 20% discount to its 5-yr mean, for ACC’s significant delays in expansions and subsequent continued market share loss.
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