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Reduce Acc Ltd For Target Rs.1,845

Results broadly in‐line; downgrade from BUY to REDUCE due to lack of medium term triggers

Valuation and Outlook

* Q4CY20 of ACC was marked by distinct volume underperformance (‐0.6% y/y) vis‐à‐vis industry growth rate (+5‐7% y/y) and our estimates (+6% y/y). However EBITDA/te at Rs 880 was ~8% higher than our estimates translating into EBITDA of Rs 7 bn for the quarter (vs. our estimates of Rs 6.97 bn).  

* ACC has commissioned 1.4 MTPA brownfield grinding unit in Jharkhand during Jan 2021. Notwithstanding the fact that company’s 4.8 MTPA expansion in Central market along with investments in WHRS system in East and Central plants would drive operating profits, these triggers remain fairly distant in nature as company would enjoy benefits of the same post CY22E.  

* In the medium term, we expect volume/EBITDA CAGR of 12.2%/5.5% over CY20‐ CY22E. Further, balance sheet of ACC will continue to be strong as we expect net cash reserves to remain stable at ~Rs 60 bn despite expected capex of Rs 36 bn over next two years.  

* At CMP of Rs 1,776, ACC is trading at EV/EBITDA of 9.9x and EV/te of ~$92 on CY22E. We continue to assign EV/EBITDA multiple of 10x on CY22E and arrive at TP of Rs 1,845/share with potential upside of 4% (previous TP of Rs 1,804). We downgrade ACC from BUY to REDUCE.

Key Result Highlights  

* Cement volumes for the quarter stood at 7.71 MT ; a marginal decline of 0.6% y/y vis‐à‐vis expected growth of 6% y/y. RMC volumes were down 22% y/y at 0.73 mcm. We believe ACC has considerably underperformed w.r.t volumes as compared to industry growth rate (+5‐7% y/y) and its peers (double digit growth).    

* Blended NSR/te was Rs 5,203, declining sequentially by 2.2% (est. of 2.5% decline) but has improved by 3.6% y/y.  

* Net sales for the company came in at Rs 41.45 bn – a growth of 2.1% y/y and 17.2% q/q but 6.5% below our estimates.

* However, profitability for ACC was better than our expectations as blended EBITDA/te was Rs 880 vis‐à‐vis our estimates of Rs 816. Although per tonne profitability improved by ~31.5% y/y (low base), it declined sequentially by ~13%. Accordingly, EBITDA for ACC stood at ~Rs 7bn (vs. our est. of Rs 6.97 bn) – witnessing growth of 29.5% y/y and 4.4% q/q.  

* ACC has marked an exceptional charge of Rs 1.28 bn in other expenses and we have adjusted for the same to derive at core operating profits.

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