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Healthy quarter; multiple triggers ahead

During 4QCY20, ACEM printed a healthy performance, capitalising on strong demand and pricing (primarily in the north). Cost controls further bolstered margin. Thus, standalone net sales/EBITDA/APAT rose 12/40/49% to INR 35.2/7.7/5.0 bn respectively. Over the next two years, ACEM’s profitability will benefit from its capacity expansion in the north and low-cost WHRS and solar power expansions. ACEM also hinted that it is exploring capacity expansion at various locations to drive long-term growth visibility. We maintain BUY with a revised SOTP-based target price of INR 308/sh.

* 4QCY20 key highlights: Sales volumes rose 8% YoY, on strong demand in the northern India. ACEM’s NSR rose 4% YoY on sustenance of healthy pricing in the north. Logistics and fixed cost controls led unitary opex declined by 1.5% YoY, bolstering unitary EBITDA to INR 1,089/MT (+30% YoY). Premium cement accounted for 12% of its trade sales in 4Q. ACEM guided that it saved ~INR 200/MT in opex in CY20 through MSA (with ACC) and its various ongoing initiatives, which moderated the impact of rising input costs. The company expects these savings to sustain, going ahead.

* Capex updates and outlook: ACEM will commission its north capacity by 2QCY21, which will boost growth CY21 onwards. Thereafter, it will also explore expansion at other locations. It is also adding 54MW WHRS in Rajasthan, HP and Chhattisgarh by early CY22, thus accounting for ~20% of its electricity requirements. It is working to source 15% of its electricity needs through solar power. These initiatives will boost volume growth and improve its profitability, in our view. We have marginally increased ACEM’s EBITDA estimates by 5/4% each for CY21/22E. We maintain BUY with a target price of INR 308 (SOTP based- standalone business at 12x Dec’22E EBITDA and 50% holding in ACC at a 20% discount to our target MCap).

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