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Result Synopsis

ACC Ltd (ACC) numbers slightly deviated from street estimates. Revenue stood at Rs51.55bn (flattish YoY/ -4.7% QoQ) primarily due to weak realizations and muted volumes. EBITDA in absolute terms declined by 11.9% YoY (-18.8% QoQ), and the EBITDA margin slid to 13.2% in 1QFY25 from 14.8% in 1QFY24 and 15.5% in 4QFY24. Adj. PAT stood at Rs 3.62 billion, a decline of 22.5% YoY (-49.5% QoQ), mainly due to lower EBITDA coupled with a decrease in other income. EBITDA/tn stood at Rs 666, a decline of 18.8% YoY (-17.3% QoQ). The YoY decline in EBITDA/ton is mainly due to a high base impact from lower volume, while the QoQ decline is primarily due to lower realization and the absence of cost benefits.

With 38.55mtpa installed capacity, ACC’s core capacity utilization stands at 76% which gives enough headroom to cater incremental capacity where we are not factoring clinker sale + MSA with Ambuja. ~25% of installed capacity is in southern region where the capacity utilization has improved gradually and we believe, synergy benefits i.e., volume plus cost from Penna Cement to give a better prospective to ACC in the region coupled with market reach. Also, ACC’s expansion plan of 1.6mtpa at Sindri (GU), Jharkhand (Eastern region) and 2.4mtpa Salai Banwa (GU), Uttar Pradesh (Central) expected to commission during end of Q4FY25 to 1QFY26. This will add volumes especially in demand rich region i.e., central region. While the ongoing capex for green power energy of 1000MW by FY26 to give big respite to energy cost. Also, various cost initiative on group level i.e., wear house optimization, increase in direct dispatches, higher usage of green energy, reduction in lead distance etc will provide cost synergy benefits to ACC.

Valuation & Outlook:

We are factoring 78-80% avg. capacity utilization to arrive at volume CAGR or 5.1% over FY24-FY26E, while realization looks weak for FY25E and expected some positiveness in FY26E. We are assuming Revenue/ EBITDA/ PAT growth of ~6%/ ~18%/ ~9% over FY24-FY26E. ACC remains a cash rich company, and the capex can be met through operating cash flow and internal accruals. At, CMP Rs2590 the stock is trading at 11.9x/ 9.3x FY25/FY26E EV/EBITDA. We believe, the stock to trade at higher multiple going forward backed by various synergy benefits, volume uptick and cement price appreciations. Therefore, we are valuing the stock at 12x FY26E EV/EBITDA (Earlier 10x FY26E EV/EBITDA) and revised our TP to Rs3256 (Earlier TP Rs2645), upgraded the recommendation to BUY from NEUTRAL. Any, further weakness in cement demand/pricing, delay in capacity expansion/cost initiative program is the key downside risk to our recommendation.

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