IGI Logo

The key highlights of ACC’s FY23 annual report: 1) Ametha greenfield expansion has been delayed by six to nine months and is now likely to be commissioned in 2QFY24; 2) Environmental clearance was granted for the Salai Banwa split grinding unit in Nov’22 with capacity of 3mtpa; however, there was no comment on the status of the expansion and the commissioning date; 3) It aims to realize cost savings of about INR500/t by increasing green power share, higher usage of alternative fuel and process optimization.

Delayed expansion could limit growth potential

ACC’s ongoing expansion plan in Ametha, Madhya Pradesh, (Greenfield integrated cement plant) with clinker/cement capacity of 3.1mtpa/1mtpa has been delayed by six to nine months. It is now expected to be commissioned in 2QFY24. With this expansion, ACC’s total clinker/cement capacity will increase to 25.6mtpa/37.5mtpa by FY24-end (based on expansion plans announced by the company).

* Sales volumes grew 5% YoY (on like-to-like comparison). The company’s cement capacity utilization stood at ~92% in FY23 vs. 78% in CY21.

* We estimate ACC’s cement sales volume to grow 5%/6% YoY in FY24/FY25, given the delay in the commissioning of Ametha expansion and limited clarity about its future expansion plans.

Profitability hurt by higher input costs, expect margin to improve in FY24

* In FY23, the cost of production increased significantly due to higher raw material and fuel costs. Raw material cost per tonne of cement rose 10% in FY23 vs. CY21, due to an increase in the cost of raw materials required for clinkering (up 16%) and gypsum, fly ash and slag (up 12%). Power and fuel cost/t grew 30% in FY23 vs. CY21 due to a surge in coal and petcoke prices.

* Due to significant cost pressures, EBITDA margin declined to 9% in FY23 vs. 19% in CY21. EBITDA/t stood at INR497 in FY23 vs. INR1,021 in CY21. We estimate EBITDA margin to improve to 13%/15% in FY24/FY25, led by a reduction in fuel prices.

* The company has been working on several cost-saving initiatives. Key costsaving initiatives include: a) maximizing wet fly ash (WFA) and conditioned fly ash (CFA) usage to reduce overall fly ash cost; b) reduced clinker factor by 1.5pp to 56.8% in FY23 and increased blended cement share to 92.4% in FY23 vs. 91.2% in CY21; c) increasing green power share by setting up WHRS and solar power plants to increase green energy share to ~50%; d) reduction in lead distance by 5% to 315km in FY23 vs. CY21; and e) higher sales volumes under master supply agreement (MSA) with ACEM.

Operating cash flows turned negative in FY23, likely to improve in FY24-25

* ACC’s OCF turned negative in FY23 due to lower profitability and higher working capital requirement, including INR9.75b in advances given to a coal trader for the supply of fuel under a long-term supply agreement. Due to lower OCF and higher capex, ACC reported FCF outflow.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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