Buy ACC Ltd For Target Rs.2,610 - ICICI Securities
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‘Parvat’ drives margin outperformance
ACC’s Q2CY21 EBITDA at Rs8.7bn (up 65% YoY) was significantly higher than our / consensus estimates mainly owing to lower costs. Despite sharp input price escalations, total cost/te increased just 0.7% QoQ (2% YoY) vs our estimate of 3.3% QoQ increase owing to better cost efficiencies under project ‘Parvat’ and leveraging MSA with ACEM.
Accordingly, blended EBITDA/te (including RMC) grew 16% both QoQ and YoY to a decade high of Rs1,245/te (I-Sec: Rs1,163/te). Factoring in better profitability, we raise our CY21-CY22E EBITDA by ~6% and increase our target multiple to 11x EV/E (earlier 10x) and raise our target price to Rs2,610/share (earlier: Rs2,300/sh) based on 11xMar’23E EV/E. Maintain BUY. Key risks: Lower demand/prices.
* Revenue grew 51% YoY to Rs38.1bn (I-Sec: Rs37.9bn): Grey cement realisation increased 5.7% QoQ (2% YoY) to Rs5,153/te (broadly in-line with our estimates) led by increasing share of premium products and higher QoQ price increases in East, West and South regions. Volumes including clinker sales increased 43% YoY to 6.98mnte (~80% utilisation) aided by low base; although it declined 13% QoQ due to second covid wave. Management expects demand to recover led by the government’s increased spending on large scale infrastructure projects over the coming months.
* RMC revenue grew 3.1x YoY to Rs2.5bn owing to 2.9x YoY volume growth on a low base. RMX EBIT came in at Rs27mn against a loss of Rs391mn in Q2CY20 and EBIT of Rs270mn in Q1CY21. During the quarter, green concrete ‘ECOPact’ rose to 6% of the total RMX sales. Other operating income declined 9% YoY / 5.3% QoQ at Rs745mn.
* Cement EBITDA/te increased 20% QoQ and 10% YoY to Rs1,235/te while blended EBITDA/te (including RMC) grew 16% QoQ and YoY to Rs1,245/te. Cement cost/te rose 2% QoQ / fell 1.5% YoY to Rs4,024/te. Raw material plus power and fuel cost/te rose only 2% QoQ and fell 10% YoY as the impact of higher fuel prices was partially mitigated through cost efficiency actions taken under project ‘Parvat’ including clinker factor optimisation, reduction in energy consumption, fuel mix optimisation etc. Freight cost/te was down 2% QoQ (up 5% YoY) owing to geo mix and network optimisation, despite rising diesel costs. Other expenses/te were up 8% QoQ / 13% YoY on account of higher maintenance costs.
* PAT more than doubled YoY to Rs5.7bn (I-Sec: Rs5.3bn) owing to strong operating performance and lower tax rate of 25% vs 33% YoY.
* OCF (post WC changes) for H1CY21 was Rs4.8bn, down 23% YoY due to sharp increase in working capital. Operations pertaining to capacity expansion of 2.7mnte clinker unit at Ametha, MP, along with associated grinding units have commenced. Waste heat recovery systems (WHRS) at Jamul (10MW) and Kymore (14MW) are likely to be commissioned by Q2CY22.
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