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Buy ACC Ltd For Target Rs.2,620

Higher realization offsets cost pressure, drives EBITDA beat

* Q3CY21 EBITDA rose 6% YoY (down 18% QoQ) to Rs7bn, 5% above our estimate of Rs6.8bn (in line with consensus), as higher-than-expected cost/ton was offset by better grey cement realization and higher RMC and other operating income.

* Volumes were broadly flat YoY to 6.7mt. Grey cement realization declined 2% QoQ (vs. our estimate of a 3% decline), owing to a change in the regional mix. Other operating income increased by 37% YoY and 28% QoQ to Rs957mn (~Rs142/ton). Accordingly, blended EBITDA/ton was up 7% YoY/down 15% QoQ at Rs1,060 (Emkay est.- Rs1,010).

* Factoring in higher opex/ton, we marginally cut our CY22-23 EBITDA estimates. However, we raise our TP by 2% to Rs2,620 as we roll over to Dec’22 from Sep’22. The revised TP is backed by a DCF analysis (11.25% WACC, 7.0% FCFF growth post FY26) and implies a 1-year forward EV/EBITDA of 11x (vs 10.4x currently). Retain Buy.

* Revenues grew 5% YoY to Rs37bn, slightly above estimates. Grey cement realization declined 1.8% QoQ (+3.7% YoY) to Rs5,058/ton (vs. our estimate of a 3% fall), owing to a marginal shift in the regional mix from East to Central markets, in our view. Volumes, including clinker sales, were flat YoY (down 4% QoQ) at 6.7mt, implying capacity utilization of 78%.

* RMC revenues increased by 55% YoY/20% QoQ to Rs3bn. RMC volumes rose 48% YoY/17% QoQ to 0.68mn cum, while realisation was up 5% YoY/2% QoQ. Other operating income increased by 37% YoY and 28% QoQ to Rs957mn (Rs142/ton).

* Cement EBITDA/ton was broadly flat YoY at Rs1,027, while blended EBITDA/ton (including RMC) grew 7% YoY to Rs1,060 (our est.: Rs1,010). Cement cost/ton increased by 5% YoY/4% QoQ to Rs4,171, owing to a sharp increase in fuel and diesel prices and higher packing materials and maintenance costs. Higher costs were partly offset by low lead distance and various cost efficiencies achieved through project ‘Parvat’. PAT increased by 24% YoY to Rs4.5bn.

* 9MCY21 performance: ÈBITDA rose 37% YoY to Rs24bn, with blended EBITDA/ton up 16% YoY at Rs1,125. We modelled volumes and grey cement realization CAGRs at 7% and 2%, respectively, over CY21E-23E.

* Expansion projects are broadly on track: The 2.7mt clinker and 1mt grinding units at Ametha and a 1.6mt grinding unit at Tikaria are expected to be commissioned by Sep’22 (earlier expected in Jun’22). WHRS at Jamul (10MW) and Kymore (14MW) are likely to be commissioned by Jun’22.

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