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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