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Strong show led by lower costs

ACC’s Q1CY21 EBITDA at Rs8.6bn (up 47% YoY) was higher than our / consensus estimates, mainly owing to lower costs. Total cost/te declined 3% QoQ (1% YoY) vs our estimate of 2% QoQ increase owing to fuel mix optimisation, better cost efficiencies and operating leverage. Volumes including clinker sales grew 19% YoY while realisation remained flat QoQ – both broadly in line with our estimates. Cement EBITDA/te increased 29% YoY to Rs1,028/te while blended EBITDA/te (including RMC) grew 23% YoY to Rs1,075/te (I-Sec: 923/te). Factoring-in better profitability, we raise our CY21-CY22E EBITDA by ~3% and, coupled with lower taxes, raise our EPS by 12-13%. With improving profitability and return ratios, we raise our target multiple to 10x EV/E (earlier 9x) and raise our target price to Rs2,300/share (earlier Rs2,050/sh). Maintain BUY. Key risks: lower demand/prices.

* Revenues grew 23% YoY to Rs42.1bn (I-Sec: Rs43.1bn): Grey cement realisation increased 6.5% YoY (flat QoQ) to Rs4,876/te led by higher prices in South and West markets and product mix optimisation on account of higher share of premium products. Volumes including clinker sales increased 19% YoY to 8.0mnte (implying >90% utilisation) owing to strong demand and aided by low base. Management maintained a cautious (due to rising Covid cases) yet positive outlook on overall cement demand in the coming months on the back of government’s increased spend on infrastructure.

* RMC revenues declined 8% YoY to Rs3.6bn owing to 11% YoY lower volumes as urban centres are still witnessing gradual recovery. EBIT margin shrunk to 7.5% vs 9.3% YoY. Other operating income grew 15% YoY / remained flat QoQ at Rs787mn. During the quarter, the company launched green concrete “ECOPact”.

* Cement EBITDA/te increased 29% YoY to Rs1,028/te while blended EBITDA/te (including RMC) grew 23% YoY to Rs1,075/te. Cement cost/te fell 5% QoQ / rose 2% YoY to Rs3,946/te. Raw material plus power and fuel cost/te fell 9% QoQ (up 13% YoY) owing to fuel mix optimisation (lower petcoke and higher linkage) and better cost efficiencies under project ‘Parvat’. Freight cost/te was up 3% QoQ and down 2% YoY. Focus on direct despatches, network and warehouse footprint optimisation, and procurement savings helped mitigate the impact of rising diesel costs. Other expenses and employee costs/te fell 8% QoQ / 9% YoY on account of better efficiencies and operating leverage.

* PAT grew 74% YoY to Rs5.6bn (I-Sec: Rs4.7bn) owing to strong operating performance and aided by lower tax rate of 25% vs 32% YoY.

* 2.7mnte clinker unit at Ametha, MP, along with 1mnte grinding unit and 1.6mnte grinding unit at Tikaria is likely to commission by Jun’22, and balance 2.2mnte Shonebhadra, UP, grinding unit may commission by early CY24. Waste heat recovery systems (WHRS) at Jamul, Kymore and Ametha are expected to be operational by mid-CY22

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