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2025-08-02 09:39:45 am | Source: Choice Broking Ltd
Buy ACC Ltd For Target Rs. 2,475 By Choice Broking Ltd
Buy ACC Ltd For Target Rs. 2,475 By Choice Broking Ltd

An All Round Miss in Q1, But Structural Story Intact

We maintain our BUY rating with a TP to INR2,475. We maintain our Volume / EBITDA per ton and EBITDA assumptions (Exhibit 2). We continue to be positive on ACC owing to: 1) Strategy around strengthening its presence in South market with the acquisition of Penna cement, 2) Value accretive cost reduction plan - targeting INR 500/t cost reduction by FY28 end under initiative Parvat, 3) Group synergy benefits, and 4) Positive sector tailwinds – we expect cement industry to grow by 7-8% in FY26 with healthy pricing environment. We 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.

We forecast ACC’s EBITDA to grow at a CAGR of 15.5% over FY25–28E, supported by our assumptions of volume growth at 8.0%/7.0%/6.0% and realisation growth of 2.0%/0.5%/0.5% in FY26E/FY27E/FY28E, respectively

We value ACC on our EV/CE framework – we assign an EV/CE multiple of 2.3x for FY27E/28E. 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 EV/EBITDA/PB/PE multiples are 13.4x/2.0x/16.9x.

An all-round miss in Q1FY26

ACC reported Q1FY26 Revenue and EBITDA of INR 60,658Mn (includes government grants refund), (+16.7% YoY, 0.2% QoQ) and INR 7,728Mn (+14.1% YoY, -3.4% QoQ) vs Choice Institutional Equities (CIE) estimates of INR 57,650Mn and INR 8,630Mn, respectively. Total volume for Q1 stood at 11.5 Mnt (vs CIE est. 10.8 Mnt), up 12.7% YoY, and down3.4% QoQ.

Realization/t came in at INR 5,275/t (+3.5% YoY, +3.6% QoQ), which is lower than CIE est. of INR 5,324/t. Total cost/t came in at INR 4,603/t (+3.8% YoY, +4.2% QoQ). EBITDA/t came in at INR 672/t (vs CIE est. INR 797/t), up 1.2% YoY and flat QoQ.

Focusing on EBITDA/t expansion via cost reduction initiatives: ACC aims to achieve cost reduction of INR 500/t by FY28E under its Parvat initiatives. In FY26, we anticipate savings of around INR 80/t in power and fuel costs, supported by a higher share of green energy, including the planned commissioning of a 200 MW solar plant at Kavda. Raw material costs are also expected to decline by INR 70/t in FY26, aided by long-term supply agreements. Further cost efficiencies are likely from logistics optimization through shorter lead distances. Backed by these measures, ACC's EBITDA/t is projected to reach INR 776 in FY26.

Q1 volume came in ahead of expectations

 

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