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Revenue in?line; Energy cost dents margin

Result Synopsis

ACC Ltd (ACC) reported weak operating performance with EBITDA margin declining to 9.5% v/s YSEC est. of 14% (v/s 14.3% q/q) due to +20/7% higher?than?expected power/freight costin Q2CY22. While ACC posted in?line volumes (cement +11% y/y; RMC +43% y/y) & NSR growth (+3% y/y) resulted in revenue of Rs44.7bn (+15% y/y) in Q2CY22. In H1CY22, ACC’s volume & NSR increased by +4% & +5% y/y. In Feb?22, ACC commissioned Tikaria 1.6 MTPA GU, while other ongoing expansion of Ametha 2.7MTPA Clinker & 1MTPA Cement capacity and Salai Banwa 2.2MTPA are on track which would take total capacity to ~39MTPA by H1CY23E. Therefore, the recently added & upcoming capacity in central market will improve the volume growth to +8% CAGR over CY22?23E (historically ACC’s volume grew at ~2% CAGR over CY16?21). The operating cost/te in H1CY22 increased by +17% y/y mainly due to unprecedented surge in power cost/te by +39% y/y to Rs1,483 (Rs1,671 v/s YSEC est. of Rs1,418 in Q2CY22), declined EBITDA/te by 41% y/y to Rs669 (blended). Therefore, the EBITDA/te for CY22E likely decline further to Rs678 (earlier YSEC est. of Rs845) as imported coal prices sustaining above US$350/te & pet?coke inched up to US$240/te by Jun’22. To improve operating efficiency, ACC is scaling up its green?power share (WHRS/Solar/Wind capacity to 75/82/19MW) and alternative fuel usage. These measures will aid ACC to partially mitigate the impact of elevated energy cost and improve EBITDA/te to Rs996 for CY23E. At CMP, stock is trading at 15/9x of EV/EBITDA on CY22/23E. Therefore, we recommend ADD with TP of Rs2,385 (earlier Rs2400) at 10x EV/EBITDA on CY23E.

Result Highlights

* ACC reported total volumes of 7.9MT (+12% y/y and ?2% q/q; 7.7MT YSEC est.) including RMC sales of 0.83mm3 (+43% y/y and ?5% q/q) along with in?line NSR of Rs5,693/te (+3% q/q & y/y both) translates in reported revenue of Rs44.7bn (+1% q/q and +15% y/y) in Q2CY22.

* Rise in power (+26% q/q & +58%y/y) & freight cost (+3% q/q & +17% y/y) inflated the total cost by +7% q/q & +34% y/y and +8% higher?than?YSEC est. resulted in EBITDA/PAT degrowth of 33/43% q/q & 51/60% y/y to Rs4.3/2.3bn (v/s YSEC est. of Rs6.1/3.1bn) in Q2CY22.

* Similarly, surge in total operating cost/te by +20% y/y & +9% q/q declined EBITDA/te by 56% y/y & 31% q/q to Rs543 v/s YSEC est. of Rs799 in Q2CY22. while EBITDA margin dragged to 9.5% (v/s 14.3% q/q and 22.4% y/y) v/s YSEC est. of 14% in Q2CY22.

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