Buy ACC Ltd For Target Rs. 2,383 By Prabhudas Lilladher Capital Ltd
ACC reported robust operating performance in 4QFY25 aided by strong volume growth and improved NSR. Volumes grew 14% YoY to 11.9mt aided by higher trade volume and better growth in premium products (7% YoY). Average cement NSR grew 2.7% QoQ as cement price hikes were seen across regions during the quarter. Except for RM costs, which grew 22% YoY due to higher MSA and traded volumes, all other costs have been constrained. Optimization of the fuel basket, lower fuel costs, increased use of Green share, and higher volumes led to a 22% YoY decline in P&F costs. Reduction in lead distance and higher direct dispatch resulted in a 9% YoY decline in freight costs. Strong operating leverage contributed to an 18% YoY decline in Other Expenses. These cost reductions aided ACC to deliver EBITDA/t of Rs698 (PLe Rs598)
The management expects cement demand in FY26 to continue benefiting from government spending on infrastructure and construction activities, with growth projected at 7-8%. Improved cement prices, driven by cost push, along with strong domestic demand from ongoing consumption in the housing and infrastructure segments, are expected to drive ACC’s earnings growth. With Adani Group’s margin accretive project initiatives, we expect ACC’s operating performance to continue to improve gradually over next two years. We tweak our FY26/27E EBITDA estimates by 3%/-2% with flattish volumes and higher pricing assumptions. The stock is currently trading at 10x/9.1x EV of FY26/27E EBITDA. Maintain ‘BUY’ with revised TP of Rs2,383 (Rs2,549 earlier) valuing at an EV multiple of 12x Mar’27E EBITDA.
? Revenue beat on strong volume growth and pricing: Revenue grew 12% YoY to Rs60.6bn (+14.7% QoQ; PLe Rs55.3bn) aided by strong volume growth and improving NSR. Cement volumes grew 14% YoY to 11.9mt (+11% QoQ; PLe 11.1mt) supported by higher trade volumes and higher premium product volumes. Average cement realization has improved 2.7% QoQ to Rs4,778/t (Ple Rs4,698).
? EBITDA remained flat despite high volume growth: EBITDA remained flat YoY at Rs8.3bn (+73% QoQ; PLe Rs6.6bn) aided by lower operating expenses. RM costs jumped 26% YoY on higher MSA volumes to Rs2,109/t. P&F costs/t declined 22% YoY to Rs730 while freight costs/t declined 9% YoY to Rs957. Other expense/t declined 18% YoY to Rs456/t on strong operating leverage. Resultant, ACC delivered EBIDTA/t of Rs698/t (-13% YoY/+56% QoQ) Vs PLe of Rs598/t on higher traded volumes. EBIT of RMC business grew 28% YoY to Rs212mn. Other income contains reversal worth Rs1.27 bn on a/c of prior period tax liabilities and interest provisions made earlier. Adjusted PAT declined 28% YoY to Rs5.5bn.
? Improving cost efficiencies: In Q4FY25 Kiln Fuel cost reduced to Rs1.47/kcal from Rs1.91/kcal YoY led by higher consumption of alternative fuels. Green power as a % of total power consumption increased 10.3pp YoY to 22.5%. AFR consumption in kiln increased 0.4pp to 11% YoY
Other Key Points:
? ICDs given to subsidiaries for land purchase: ACC’s wholly owned subsidiary ACC Mineral Resources (AMRL) acquired 100% stake in 15 private companies for cash consideration Rs2.98bn (also provided funds through inter corporate deposits of Rs3.8bn) in Feb–Mar'25; 13 were acquired on 27th Feb’25. These 15 companies collectively own land parcels — some meant for future manufacturing facilities and some with mining rights, which align with ACC’s future expansion plans. Although the land acquired is meant for expansion and ICDs are given to its 100% subsidiaries, investors would expect further details on the same from management.
? ACC trying to clear old matters and realign itself with parent company: ACC reported exceptional items worth Rs1.35bn on account of: 1) Rs270mn paid on settlement of a legacy dispute via arbitration on 20th Feb’25, related to a terminated 2012 Cement Purchase Agreement. 2) Impairment loss of Rs2.07bn booked on three idle clinker units (Wadi-1, Bargarh, Chaibasa) due to weak viability outlook. This is part of ACC’s initiatives to realign its EBITDA/t in line with its parent company. 3) Completed sale of Thane land to related party Camrose Realtors for Rs3.85bn; conveyance deed signed on Mar’25. Booked Rs3.69bn profit as an exceptional item in Q4. Apart from this, AMRL settled old dispute with JMS Mining for Rs350mn Cr in Oct 2024 over cancelled Bicharpur Coal Block contract and included the same in FY25 exceptional items.
? Govt-approved Rs6.39bn excise duty refund recognized as income in Q3FY25, following Supreme Court ruling. Benefits from government now separately disclosed as “Government Grants including duty credits/refunds” from Dec’24 onwards.
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