Buy ACC Ltd For Target Rs. 1,445 by Choice Institutional Equities
Near-term earnings pressure prompts TP Cut to INR 1,445; retain ‘BUY’ on long-term growth prospects
We retain our ‘BUY’ rating on ACC but cut our target price to INR 1,445/share (from INR 1,700/share), factoring in a weak Q2FY27 performance, with lower-than-expected volumes and a sharp decline in profitability amid elevated operating expenses. We believe the weak performance reflects subdued operating leverage and persistent cost pressure, which are likely to constrain near-term earnings recovery. We have also reduced our valuation multiple to 1.2x FY28E EV/CE (from 1.4x), reflecting the slower-than-anticipated recovery in operating performance and heightened near-term earnings uncertainty.
Despite near-term margin headwinds, we remain constructive on ACC’s long-term outlook, supported by:
(a) Merger-led synergies from the proposed amalgamation with ACEM, projected to be completed in FY27E
(b) Capacity expansion of 3.4 MTPA commissioned in Q2FY27, strengthening ACC’s presence in Uttar Pradesh and Maharashtra, supporting future volume growth
(c) Improving pricing prospects, with INR 15–20/bag price hike already implemented and further hike expected, which could aid cost pass-through and support margin recovery.
We project ACC to deliver an EBITDA CAGR of ~7.3% over FY26– FY29E and derive a 1-year forward target price of INR 1,445/share, based on a valuation multiple of 1.2x FY28E EV/CE, while retaining our ‘BUY’ rating.
Q2FY27: Earnings performance muted
ACC reported Q2FY27 revenue and EBITDA of INR 56,350 Mn (including government grants of INR 230 Mn), (-4.9% YoY, -2.3% QoQ) and INR 3,740 Mn (-54.4% YoY, -13.8% QoQ) vs CIE estimate of INR 57,084 Mn and INR 3,733 Mn, respectively. Total volume for Q2 stood at 10.4 Mnt (vs CIE estimate of 10.7 Mnt), down 7.1% YoY and 3.3% QoQ.
Blended realisation/t came in at INR 5,418/t (2.4% YoY, 1.0% QoQ), which is higher than the CIE estimate of INR 5,337/t. Total cost/t came in at INR 5,059/t (+11.0% YoY, +2.0% QoQ). EBITDA/t came in at INR 360/t, down 50.9% YoY and 10.9% QoQ.
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