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Weak realization offset volume and costs benefit

ACC (ACC IN) reported Q2FY27 EBITDA of ~INR 3.7bn, down ~54% YoY and ~14% QoQ, but ahead of our and Consensus estimates of ~INR 3.2bn and INR 3.4bn, respectively, driven by higher -than -expected volume and lower operating cost, partly offset by weak reali zation. Performance took a hit from higher master supply agreement (MSA) volume with the parent Ambuja Cements (ACEM IN, Accumulate, CMP: INR 355, TP: INR 411). Cash and cash equivalents increased to ~INR 5.8bn from ~INR 3. 8bn in Q1FY27.

While near -term performance is likely to remain impacted by e levated coal & petcoke price, restating of temporary suspension of older plants and price hike under taken by the i ndustry in the p ast few weeks are likely to support earning s recovery. The proposed merger with ACEM is set to be completed in FY27. As our TP offers upside potential of ~17%, we revise our rating to Accumulate with a lower TP of INR 1, 347 , derived from our ACEM TP and based on an implied 5.8x FY2 9E EV/EBITDA.

EBITDA/tonne at its lowest level since September 2022:

S ales volume rose ~ 4% YoY and ~2% QoQ to 10.4mn tonne, ~3% ahead of our estimates. Blended realization fell ~ 9% YoY and ~4% QoQ to INR 5, 418/tonne. Blended operating cost dipped ~ 1% YoY and ~ 3% QoQ to INR 5,059 /tonne , due to the decline in cost components . Alt hough kiln fuel cost rose to ~INR 1.81/kCal in Q2FY27 from ~INR 1.57/kcal in Q2FY26 and ~INR 1.67/kCal in Q1FY27, primarily due to the ongoing West Asia conflict , cost efficiency was supported by the increase in green power share , which rose to ~34.4% in Q2FY27 from 30.3% in Q2FY26 and 31% in Q1FY27. EBITDA/tonne (including Other operating income) declined ~5 6% YoY and ~1 5% QoQ to INR 360, vs our estimate of INR 319.

Capacity increases ~3.4mn tonne in Q2

ACC has commenced production at its 2.4mn -tonne grinding unit at Salai Banwa, Uttar Pradesh post -trial runs in Q1FY27 . Bulk Cement Corporation (India), a subsidiary of ACC, commissioned a 3.0mn tonne cement blending unit at Kalamboli, Maharashtra, adding 1.0mn -tonne cement capacity . The se two projects added 3.4mn -tonne cement capacity during the quarter and are likely to support incremental volume growth in the medium ter m.

Revise to Accumulate with a lower TP of INR 1,347:

While near -term earnings are likely take a hit from the rise in fuel cost amid the West Asia war , we expect it to recover on the back of pickup in volume ,supported by capacity ramp -up, incremental output from new plants, and cost savings initiatives. We cut our EBITDA by ~21% for FY27E, ~14% for FY28E , and ~10% for FY29E, after factoring in weak realization. In view of the pending merger with ACEM, we derive ACC’s TP from ACEM’s TP of INR 41 1 based on the announced swap ratio. As our TP offers potential upside of ~17%, we revise our rating to Accumulate from Buy with a lower TP of INR 1, 347 from INR 1,397 based on 5.8x March 2029E implied EV/EBITDA. Key risks to our call include sub -par demand, weak cement prices, and a sharp rise in fuel cost.

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