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Efficiency measures under “Project Parvat” visible…

About the stock: ACC (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 progressing as per the schedule

Q4CY22 Results: ACC’s operational numbers broadly remained in line with our estimates. However, exceptional charge of | 54.8 crore led to sharp cut in profits.

Revenue of | 4225.8 crore up 2.0% YoY. Sales volume dipped 2.9% YoY to 7.5 MT (I-direct estimate: 7.2 MT), realisations were up 4.9% YoY to | 5642/t

Absolute EBITDA declined 2.7% YoY to | 556.3 crore (down 21.9% QoQ) vs. I-direct estimated EBITDA of | 533.4 crore. EBITDA/t of | 743/t (flat YoY, down 31.5% QoQ) remained in line with our estimates

PAT of | 280.9 crore was lower than our estimates, mainly due to exceptional charge of | 54.8 crore pertaining to restructuring

What should investors do? ACC’s share price has grown by ~1.9x over the past three years (from ~| 1350 in February 2019 to ~| 2570 levels in November 2021).

Given the healthy growth outlook and comfortable valuations, we remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value ACC at | 2850 i.e.12x CY23E EV/EBITDA

Key triggers for future price performance:

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

Various cost initiatives taken under “Project Parvat” to bring down the costs are now visible. The production cost gap between company and other large players has now narrowed down to ~9% vs ~15% earlier

Expect revenue & PAT CAGR of 8%, 12.3%, respectively, during CY21-23E

Alternate Stock Idea: Besides ACC, in our cement sector coverage we also like Orient Cement.

Low cost producer in the cement space having major presence in South. The company is planning significant debt reduction before moving into next phase of expansion

BUY with a target price of | 250/share

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