Buy ACC Ltd For Target Rs.2,475 - Choice Broking Ltd
Continue to maintain our positive stance
We maintain our BUY rating with a TP to INR2,475. We maintain our Volume / EBITDA per ton and EBITDA assumptions (Exhibit 2), We now incorporate a robust EV to CE (Enterprise Value to Capital Employed) based valuation framework (Exhibit 3) which allows us a rational basis to assign a valuation multiple that captures fundamentals in a better way.
We forecast ACC EBITDA to grow at a CAGR of 35.5% over FY25–28E, supported by our assumptions of volume growth at 12.0%/8.0%/8.0% and realisation growth of 1.5%/0.5%/0.5% in FY26E/FY27E/FY28E, respectively. We remain positive on ACC.
We arrive at a 1-year forward TP of INR 2,475/share for ACC. We now value ACC on our EV/CE framework – we assign an EV/CE multiple of 2.4x for FY27E/28E, which we believe is conservative given the increase of ROCE from 5.7% in FY25 to 14.9% in FY28E under reasonable operational assumptions. This valuation framework gives us the flexibility to assign a commensurate valuation multiple based on an objective assessment of the quantifiable forecast financial performance of the company. We do a sanity check of our EV/CE TP using implied EV/EBITDA, P/BV, and P/E multiples. On our TP of INR 2,475, FY28E implied EVEBITDA/PB/PE multiples are 13.3x/2.1x/15.5x. Management has indicated the cement industry is expected to grow by 7-8% in FY26. Slowdown in construction activities due to heatwaves, sudden large spike in petcoke prices as a result of various global dynamics are risks to our BUY rating.
Q4FY25 Volume growth impressive, EBITDA/t in line:
ACC reported Q4FY25 Revenue and EBITDA of INR59,486 Mn (+12.1% YoY, 14.9% QoQ) and INR7,404 Mn (-0.6% YoY, +90.2% QoQ) vs CEBPL estimates of INR56,727 Mn and INR7,059 Mn, respectively. In our view market expectation of Q4FY25 EBITDA was in the range of INR 7,000 – 7,500 Mn, so the reported numbers are in line with street expectations. Total volume for Q4 stood at 11.9 Mnt (vs CEBPL est. 11.5 Mnt), up 14.0% YoY, and 11.2% QoQ, which is an impressive factor from the results.
Realization/t came in at INR4,999/t (-1.6% YoY, +3.3% QoQ), which is higher than CEBPL's est. of INR4,934/t. Total cost/t came in at INR4,377/t (+0.2% YoY, -2.2% QoQ). As a result, EBITDA/t came in at INR622/t (vs CEBPL est. INR614/t), down 12.8% YoY and up 71% QoQ.
Focusing on EBITDA/t expansion via cost reduction initiatives:
ACC is targeting cost reductions of INR500/t by FY28 under its Parvat initiatives. We expect an ~INR80/t in FY26 saving in power and fuel costs, driven by an increased share of green power, including the commissioning of a 200 MW solar plant at Kavda. Raw material costs are likely to decline by INR50/t in FY26 through longterm tie-ups. Additionally, logistics optimization through reduced lead distances will further support cost savings. With the support of these initiatives, EBITDA/t is expected to grow by ~INR150/t in FY26. Further, we forecast ACC’s EBITDA to grow at a CAGR of ~35.5% over FY25–FY28.
Volume to grow at 9.3% CAGR over FY25- 28, driven by capacity expansion; profitability to improve on positive pricing outlook:
ACC plans to expand its total capacity from 39.9 MTPA to 45 MTPA, with a capex of INR10,000 Mn allocated for FY26. Most of this expansion will be focused on the East and Central regions. Cement prices are on an upward trend, with further hikes expected in the near term. All-India cement prices rose by ~INR15 in April, and we have factored in a ~1.5% growth in realisations for FY26. Backed by strong volume growth and improving realisations, we expect ACC’s revenue to grow at a CAGR of 10.2% over FY25–FY28.
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