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Cost Efficiency & Synergies to propel growth

Result Synopsis

ACC Ltd (ACC) delivered results in line with our expectations, 11% y/y revenue growth was primarily driven by an 18% y/y volume increase but was partially offset by 6% y/y NSR correction in Q2FY24. The Total cost/te declined by 17% y/y resulted in an EBITDA of Rs678/te in Q2FY24, a significant improvement from Rs24/te in Q2FY23. Power cost eased to Rs1095/te (down by 43% y/y) because of lower kiln fuel costs and from higher blended cement production. Because of higher other income, PAT exceeded expectation by 17% reaching to Rs3.9bn in Q2FY24 as compared to a net loss of Rs0.7bn in Q2FY23. ACC's recent capacity expansion of 3.3MTPA clinker and 1MTPA cement in Ametha,took the total capacity to ~37MTPA in Q2FY24. With the operationalization of 22.4MW of WHRS at Jamul & Kymore and ongoing 16.3MW at Ametha (expected by Q3FY24) will increase the total WHRS capacity to 46.3MW, raising the green energy share to 9% by FY24 end from 2.9% in Q1FY24.

ACC currently operates at +80-90% of the capacity (excl. MSA volumes) and the newly added 1MTPA GU at Ametha won’t provide adequate production headroom to ACC in the near-term. Further, the announced expansions are largely planned in the parent company, therefore incremental volumes for ACC will come from Ambuja under a master supply agreement. This sets the stage for ACC to achieve 10% CAGR volume growth over FY24- 26E against 2% CAGR over a decade. EBITDA is expected to reach +Rs950/te by end of FY25E guided by blended volumes and cost normalization. Ongoing cost-effective measures, like scaling green power, usage of alternative fuels, and debottlenecking, are expected to bring further savings of Rs300-400/te in the medium term. ACC is a net cash company with cash & cash equivalent of Rs57bn (as of Mar’23) would aid to fund CAPEX internally. We rolled forward our estimate to FY26 arriving at a target price of Rs2467 with a BUY rating, valuing the stock at 10x EV/EBITDA on FY26E.

Result Highlights

* Revenue came in-line to Rs44.4bn up by 11% y/y aided by volume growth of 18% y/y, While NSR corrected by 6% y/y in Q2FY24.

* As expected, total cost/te declined by 17% y/y due to ease in power / freight & other cost moderation by 43/18 & 22% y/y in Q2FY24.

* EBITDA came at Rs5.5bn in Q2FY24 against Rs0.16bn in Q2FY23 translates in EBITDA/te of Rs678 v/s YSECe of Rs735 in Q2FY24

* In Q2FY24, EBITDA margin came in at 12.4% (13.2% YSECe) as compared to 0.4% in Q2FY23 and 14.8% in Q1FY24.

* PAT came +17% above YSECe to Rs3.9bn aided by higher-than-expected other income in Q2FY24.

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