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Margin pressure continues; awaiting Adani’s move 

ACC  reported  below  estimate  EBITDA  of  Rs4.2bn  (CentrumE:  Rs5.6bn),  down  33%  QoQ/ 51% YoY and blended EBITDA/t of Rs563 (CentrumE: Rs755), down ~32% QoQ/  56%  YoY.  It  is  the  lowest  EBITDA/t  in  last  22  quarters.  The  sequential  decrease  in  EBITDA was primarily due to higher power & fuel and freight cost, offset by marginal  increase in cement realisation. ACC is set to improve efficiency with commissioning of Jamul  and  Kymore  WHRS  plants  by  Q3CY22,  while  orders  are  placed  for  further  capacity addition at Chanda and Wadi plants (29MW) taking total capacity to 75MW.  The cement capacity expansion of 1mtpa at Ametha is on track and is expected to be  commissioned  by Q4CY22 and  has  plan  to increase  overall  capacity  to  39.4mtpa  by  CY24 end. Further expansion plans will be looked after takeover by Adani Group. We  reduce CY22E/CY23E EBITDA by 28%/11% to factor in higher power & fuel cost. As a result,  we  cut  our  target  price  to  Rs2,566  (earlier  Rs2,995),  valuing  it  at  13x  CY23E  EV/EBITDA. Reiterate BUY.

Revenue marginally up QoQ on higher realisation

Net Sales increased 1.7% QoQ (up 15.3% YoY) to Rs43.9bn. Cement volumes at 7.56mt  was  down  1.9% QoQ  due  to muted  demand  during  the  quarter. As a result,  capacity  utilisation  fell  from  ~89.3%  in  Q1CY22  to  ~87.6%  in  Q2CY22  but  remain  higher  YoY  (Q2CY21 ? ~79%). Average cement realisation at Rs5,337/t inched up by 4.4% QoQ (up  3.6% YoY).

Higher CoP led to fall in margins; EBITDA/t fell to Rs563, close to Dec’16 quarter

Blended operating cost at Rs5,348/t increased by ~8.7% QoQ/ up ~21% YoY. Power &  fuel cost increased 28.6% QoQ (up ~43% YoY) to Rs1,734/t while freight cost at Rs1,433/t  was up ~4.8% QoQ  (up  6% YoY) amid higher  diesel prices. The cement price increase  helped to marginally offset cost inflation. As a result, EBITDA at Rs4.2bn was down 33%  QoQ  (down 51% YoY). Blended EBITDA/t stood at Rs563/t, down 32%  (Rs259/t) QoQ/  down 56% (Rs716/t) YoY.

Capacity expansion on track; another 1mtpa to be added by CY22 end

ACC commissioned brownfield capacity of grinding unit of 1.6mtpa at Tikaria in Feb 2022,  taking total capacity to 36.1mtpa. The greenfield expansion at Ametha, Madhya Pradesh (integrated  unit  with  clinker  capacity  of  2.7mtpa  and  grinding  capacity  of  1mtpa),  is expected to be commissioned in Q4CY22. Moreover, greenfield project of grinding unit expansion  of  2.2mtpa  in  Salai  banwa  is  on  track  of  implementation  by  CY24.  Further  expansion details will be tracked once acquisition by Adani group is completed.

Reiterate BUY, awaiting Adani’s move to reduce CoP

Assuming ongoing open offer (buying 26% stake at Rs2,300/share) gets successful, Adani group together with Ambuja will have 80.5% stake in ACC. Though Q3CY22 earnings will be hit  further  owing  to  higher  power  &  fuel  cost,  lower  volumes  due  to  seasonality  and inability  to  raise  cement  prices,  we  would  wait  for  the  move  (pricing  as  well  as  cost rationalisation) to be taken once Adani group takes over. The capacity expansion is on track and increase capacity to 39.3mtpa by CY24. We reiterate BUY with target price of Rs2,566.

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