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Expansion projects on track

* Q4CY21 EBITDA declined 21-22% YoY and QoQ to Rs5.6bn owing to higher input cost inflation. Blended EBITDA/ton fell 20% YoY/32% QoQ to Rs724 (Emkay est. - Rs899).

* Management mentioned that the ongoing expansion projects are on track. The expansion will increase ACC’s grinding capacity to 40mt (from ~35mt currently) by early Q2CY23, and the company aims to increase it further to 45-50mt by CY25E.

* In CY21, FCF generation increased by 12% YoY to Rs18bn post capex of Rs11.5bn. Net cash increased by Rs15bn (post dividend payment) to Rs75bn as of Dec’21. Accordingly, ACC announced a higher dividend of Rs58/sh (vs. Rs14/sh for past three years), implying ~60% payout ratio in CY21.

* Factoring in higher opex/ton, we cut our CY22-23 EBITDA estimates by 6-11%. We also reduce our fair value EV/EBITDA multiple to 10.5x from 11x, based on marginally higher WACC/CoE. We roll forward to Mar’23 (from Dec’22) and cut our TP to Rs2,550 (earlier Rs2,620). Maintain Buy.

* Revenues grew by 2% YoY to Rs41bn. Grey cement realization remained broadly flat QoQ/rose 3% YoY at Rs5,033/ton. Volumes, including clinker sales, fell 1%YoY/rose 14% QoQ to 7.7mt, both broadly in line with estimates. Premium products volumes grew sharply by 20% YoY and contributed nearly 27% (+200bps YoY) of trade sales. Pricing of premium products stood ~Rs30-50/bag higher than base products.

* Cement EBITDA/ton rose 4% YoY/fell 33% QoQ to Rs687, while blended EBITDA/ton (including RMC) declined 20% YoY/32% QoQ to Rs724 (our est.: Rs899). Cement cost/ton increased by ~3% YoY/7% QoQ to Rs4,460, due to sharp input cost escalations. Management mentioned that it has achieved cost savings of ~Rs300/ton through Project Parvat in the past two years and the project has the potential to provide further savings of ~Rs100-150/ton in various cost line items.

* Targeting 40mt capacity through ongoing projects by early Q2CY23; 45-50mt by CY25E: Regarding the ongoing projects, management said that 1) the 1.6mt grinding unit at Tikaria is nearing completion; 2) the 2.7mt clinker and 1mt grinding units at Ametha are likely to be commissioned by Sep/Oct’22; 3) the 2.2mt grinding unit at Salai Banwa, UP, is expected to be commissioned by early Q2CY23. Besides, management said that they remain committed to increase grinding capacity further to 45-50mt by CY25E.

* Targeting to meet ~25% of power requirements through WHRS by CY25E: Current capacity of WHRS is 7MW and management targets to increase it to 45MW by CY22E and 85-90MW by CY25E. Accordingly, green power’s share is expected to be 16% in CY22E and management expects to increase it to more than 40% by CY25E.

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