IGI Logo

Reduction in fuel cost remains key trigger

ACC’s Q1CY22 EBITDA of Rs6.35bn (down 26% YoY) was broadly in-line with our / consensus estimates. Total cost/te continued its upward trajectory as it rose 1.6% QoQ and 13% YoY primarily due to higher fuel prices, while blended realisations were up 2.7% QoQ and 5.0% YoY, resulting in blended EBITDA/te increasing 12% QoQ but declining 24% YoY to Rs812/te (I-Sec: Rs779/te). Volumes including clinker sales were down 2% YoY and up 2% QoQ at 7.8mnte. Factoring in higher cost escalations, we cut our CY22E-CY23E EBITDA by 16-3% and reduce our target price to Rs2,615/sh (earlier: Rs2,710/sh) based on 11x Mar’24E EV/E. Maintain BUY. Key risks: Lower demand/prices and sharp cost escalations

Revenue grew 2.6% YoY to Rs43.2bn (I-Sec: Rs43.4bn): Grey cement realisation was up 1.6% QoQ to Rs5,112/te owing to strong QoQ price increase in East India. Cement volumes were down 3% YoY and volumes including clinker sales of ~0.1mnte were down 2% YoY and was up 2% QoQ at 7.82mnte (~90% utilisation). RMC revenue grew 10% YoY to ~Rs4bn, aided by similar growth in volumes and realisations. RMX EBIT came in at Rs277mn vs Rs270mn YoY and Rs145mn QoQ. Green concrete ‘ECOPact’ (launched last year) is gaining traction and now contributes 17% to Ready Mix concrete sales. Other operating income increased 33% YoY and 18% QoQ to ~Rs1bn.

Blended EBITDA/te (including RMC) declined 24% YoY but was up 12% QoQ to Rs812/te. Total cost/te rose by 1.6% QoQ to Rs4,849/te (+13% YoY). Raw material plus power and fuel cost/te rose 28.4% YoY owing to a sharp increase in fuel prices; however, dipped 1% QoQ. Petcoke usage likely increased from <30% to ~55% QoQ, while domestic coal likely constituted 35% and AFR 10% of the fuel mix. Freight cost/te dipped ~1% YoY owing to efficiencies generated through project ‘Parvat’ despite rise in diesel costs. Other expenses/te rose 6% YoY and 5% QoQ. Recurring PAT was down ~30% YoY at ~Rs4bn. Going ahead, we believe ongoing sharp cost increases in fuel/diesel prices may impact industry’s EBITDA/te on a YoY basis during H1FY23; although profitability may improve QoQ in Q1FY23 led by commensurate price increases across most regions.

Capacity expansion currently ahead of schedule: ACC has commissioned its 1.6mnte grinding unit at Tikaria, UP in Feb’22 taking the total cement capacity to ~36mnte. The 2.7mnte clinker and 1mnte grinding unit in Ametha may get commissioned by end-CY22. Balance 2.2mnte at Salai Banwa, UP, grinding unit may go on stream in CY23. WHRS units in Jamul (10MW), Kymore (12.4MW) and Ametha (16.3MW) are expected in CY22 while ACC has recently approved WHRS units in Wadi & Chanda to achieve total capacity of 75MW. Various recent media articles [link] suggesting Holcim exploring exit from India may pose executional challenges for the timely completion of this ongoing capex, in our view.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer