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Healthy operational performance…

About the stock:

ACC (A Holcim group company) is a large cement player with capacity of over 34.5 MT in India and one of the oldest cement players in the industry. The company also manufactures ready-mix concrete and has 50 plants across India.

* ACC has a strong balance-sheet with debt free status. However, it remains a laggard in terms of efficiency and operating margins vs. peer companies

* The ongoing capex of | 3500 crore would increase its capacity to 39.3 MT by H1CY22E. The 1.1 MT GU in Sindri has already been commissioned, balance 4.8 MT new capacities are expected to get commissioned

Q1FY22 Results:

ACC reported a healthy operational performance in Q1FY22 wherein it managed to improve margins and profitability despite lower revenues.

* Clocked revenue of | 3884.9 crore, up 49.3% YoY but down 9.5% QoQ driven by sales volumes (up 42.5% YoY to 6.84MT)

* EBITDA/t up 16.1% YoY to | 1271/t (vs. last quarter EBITDA/t of | 1079/t. EBITDA margin was at 22.4%, up 218 bps YoY, 233 bps QoQ

* Ensuing PAT was at | 569.4 crore, up 110.1% YoY, 1.2% QoQ

What should investors do?

ACC’s share price has grown by ~1.8x over the past three years (from ~| 1295 in July 2018 to ~| 2310 levels in July 2021).

* Given the healthy demand and margin outlook, we remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value ACC at | 2800 i.e.12.5x CY22E EV/EBITDA

Key triggers for future price performance:

* The company is raising its capacity to 39.3 MT entailing a capex of ~| 3500 crore, which would be funded through internal accruals

* ACC aims to bring down the cost by | 200/t via optimising logistics and fixed cost, as its cost of production is ~15% higher than the industry average

Alternate Stock Idea:

Apart from ACC, in our cement sector coverage, we also like Sagar Cement.

* Low cost producer in the cement space having a presence in south (AP/Telangana), now expanding its footprint in central & eastern region

* BUY with a target price of | 1,250/share

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