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Lower costs boost profitability; valuation attractive
ACC’s Q1CY20 EBITDA increased 10% YoY to Rs5.9bn, above our / consensus estimates, mainly led by lower than expected raw material and power & fuel costs. Cement realisation increased 1.5% QoQ while volumes including clinker sales declined 11% YoY to 6.74mnte – both broadly in line with our estimates. Total cost/te declined 3.4% YoY owing to sharp movement in inventories. Accordingly, blended EBITDA/te increased 24% YoY to Rs870/te. ACC’s expansion projects may get delayed on likely contraction in FY21 demand, in our view. Factoring-in the higher impact of COVID-19 lockdown, we reduce our CY20E EBITDA by 7% while broadly maintaining our CY21E estimates. Maintain BUY with the target price unchanged at Rs1,520/share based on 9x Mar’22E EV/E.
* Revenues declined 11% YoY to Rs34.3bn: Grey cement realisation increased 1.5% QoQ / declined 1.6% YoY to Rs4,576/te. Volumes including clinker declined 11% YoY to 6.74mnte owing to COVID-19 lockdown from 24th Mar’20. ACC has resumed operations at various plants w.e.f. 20th Apr’20 in a phased manner. Management expects overall demand to contract in FY21. Infrastructure development and real estate construction may see revival albeit at a moderate pace. Demand in rural housing may witness a quicker recovery while pickup in urban housing will be more gradual, as per the management.
* RMC revenues stood flat YoY at Rs3.9bn. Volumes too stood flat YoY with VAP volumes improving significantly during the quarter. EBITDA increased 8% YoY to Rs486mn with margin increasing by 100bps YoY to 12.5% in Q1CY20. Two new RMC plants were commissioned in Q1CY20 taking the total count to 92.
* Blended EBITDA/te increased by a sharp 24% YoY to Rs870/te. Cement EBITDA increased 11% YoY to Rs5.4bn with cement EBITDA/te also increasing 24% YoY to Rs798/te. Cement cost/te declined 5% YoY / 4% QoQ to Rs3,881/te. Raw material (ex-inventory movement) cost/te declined 16% YoY on optimisation of source mix and better supply chain management. Power & fuel cost/te increased 4% YoY due to lower sales volumes, partly mitigated through fuel flexibility, increase in usage of AFR and improvement in energy efficiency. Freight cost/te declined 1% YoY due to reduction in primary rail freight through better planning, rationalisation of secondary freight and warehousing costs. Other expenses/te including employee costs increased 3% YoY owing to poor operating leverage. PAT increased 31% YoY to Rs3.2bn (I-Sec: Rs2.9bn). Tax rate for the quarter stood at 32% (I-Sec: 27%).
* We factor-in 1.8% volume CAGR over CY19-CY21E and expect EBITDA to increase marginally to Rs853/te by CY21E from Rs835/te in CY19. ACC had net cash of Rs46bn as at Dec’19 and is likely to generate OCF / incur capex of Rs35bn over CY20-CY21E. Valuation at 6.5x CY21E EV/E is attractive, in our view.
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