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Missed expectations; Focus on growth and costs to augur well

ACC’s 4QCY21 results reported a miss on EBITDA led by adverse movement in realisations/direct costs. Reported volumes reported strong growth sequentially at 14%, however, the cement sales moderated on a YoY basis (-3% YoY; +9% vs. JMFe). Realisations reported a marginal decline sequentially by 1% QoQ vs. an expectation of 1% rise while direct costs rose by 21% vs. an expectation of 8% rise QoQ driving a 31% sequential decline in blended EBITDA/t to INR 689. Overall, rise in direct costs of c.INR 410/t was partially offset by better absorption of fixed costs (-INR 140/t QoQ). The company has been keeping low inventory to benefit as soon as the commodity prices drop. As per the management, company’s flagship cost control initiative (Project Parvat) have delivered results driving the benefit of INR 300/t. Management expects to cut costs by another INR 100-150/t through the initiative. Company’s Ametha project (2.6MTPA of 4.8MTPA pipeline capacity) is expected to be commissioned by Sep’22. Expansion will mitigate the concerns on growth in the medium term. Further, company’s continued efforts to narrow the cost gap with peers (WHR capacities in kiln operations and logistics optimisation through MSA) while focusing on growth augur well. We continue to value ACC at 11x EBITDA. We maintain BUY with a revised target price of INR 2,450 (Dec’22).

* Cement volumes surprised positively growing significantly QoQ: Company reported 4QCY21 revenues at INR 42.3bn (+6% vs. JMFe), +2% YoY, as the demand dipped in Nov’21. However, volumes surprised positively reporting strong growth sequentially. Overall, cement volumes were at 7.5mnT grew 14% QoQ (-3% YoY; 9% ahead of JMFe), RMC volumes remained stable YoY in 4Q led as the urban infra demand supported the sales. Blended realisations at INR 5,234/t, marginally down 1% QoQ (+5% YoY), was 1.3% lower vs. JMFe.

* Adverse movement in realisation/costs drive miss: ACC's 4Q EBITDA at INR 5.6bn, registered de-growth of 21% YoY, 16% lower vs. JMFe. Blended EBITDA/t at INR 689/t reported a sequential drop of 31% primarily led by sharp rise in direct costs (+INR 412/t) driven by rise in commodity prices. However, better absorption of fixed expenses partially offset the impact of direct costs. Overall EBITDA/t was 21% lower vs. JMFe owing to adverse realisations/cost mix during 4Q. Management highlighted that they are keeping low inventory, to benefit as soon as the prices of commodities drop.

* The expansion pipeline line of 4.8MTPA improves growth visibility: The Company has 3MTPA clinker line (c.14MW of WHR) at Ametha (commissioning expected by Sep’21) and supporting grinding units (cumulatively 2.6MTPA to be completed by 1HCY23) across central and northern regions. Company is implementing WHR across some plants to reach a cumulative WHR capacity of 45MW by CY22 and thereafter plans to double the WHR capacity by CY25 to 90MW. In addition, to the current projects, management has also planned to increase the cumulative capacity to 45-50MTPA in 2-3 years.

* Maintain BUY: We continue to value ACC at 11x one year forward EBITDA and roll forward to Dec’22. We maintain BUY with a revised TP of INR 2,450.

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