Buy ACC Ltd For Target Rs.2,795 By Choice Broking Ltd
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ACC Ltd. Q1FY25 volumes came at INR10.2mnt, down 2.3% QoQ but up 8.5% YoY, driven by high acceptance of premium products. However, cement demand is impacted due to election and floods. Revenue for quarter came at INR51,556mn, down 4.5% QoQ and 0.9% YoY. EBITDA/t for the quarter came at INR664/t, down 17.2% QoQ and 18.9% YoY. The decline in EBITDA/t was mainly led by lower realizations. PAT for quarter stood at INR3,661mn, down 51.1% QoQ and 21.1% YoY. EPS for Q1FY25 was INR19.5.
* Expansion plan remains strong: ACC Ltd has recently launched a 16.3 MW WHRS at Ametha, increasing their total WHRS capacity to 46.3 MW. Progress on additional WHRS facilities at Chanda (18 MW) and Wadi (21.5 MW) is on track, with commissioning expected in Q2FY25E, which will bring the total capacity to 86 MW, accounting for 25% of the company's total power needs. Additionally, ACC Ltd has strategic plans to expand the Sindri grinding unit, aiming to increase cement capacity by 1.6 mtpa by Q4FY25E. This project is already in progress, with the EPC contract awarded and activities underway. Further expansion initiatives are planned for the Salai Banwa grinding unit, targeting a 2.4 mtpa capacity increase by Q1FY26E, and brownfield expansions at the Bhatinda grinding unit in Punjab and the Marwar grinding unit in Rajasthan are also set to be commissioned in the coming quarters.
* Realisation is expected to remain under pressure: During the quarter, cement prices declined, leading management to anticipate continued pressure on pricing. The company reported a realization of INR5,054/t, down 2.2% QoQ and 8.7% YoY. Cement prices have shown persistent weakness over the past 7-8 quarters, with average Pan-India prices declining by 2% to 3% QoQ. Exit prices in June were an additional 3% lower compared to the Q1 average. Cement prices are expected to remain soft through the monsoon quarter, with an anticipated increase across the industry beginning in Q3FY25E
* Total cost came at INR4,391/t: During Q1FY25, raw material cost/t were INR985/t, reflecting an 18.6% increase QoQ and a 12.5% rise YoY. The company is expected to benefit from long-term agreements with key raw material suppliers, which are expected to reduce raw material costs in the coming quarters. Power and fuel costs/t were INR970/t, up 4.1% QoQ but down 18.9% YoY. The decline in power and fuel expenses was driven by Kiln fuel cost improved from INR2.14 per kCal to INR1.73 per kCal with change of fuel basket and higher consumption of alternative fuels. Thermal value reduced from 757 kCal to 739 kCal, with further improvement expected in future quarters. Freight expenses/t for the quarter were INR1,075/t, up 1.7% QoQ but down 13.6% YoY, with expectations of further reductions due to various initiatives, including a modal shift in logistics
* Valuation and Outlook: India's cement demand is expected to maintain a growth rate of 7-8%, largely propelled by investments in infrastructure and extensive residential housing projects. The company is targeting to double its capacity to 140mnt by FY28E, a significant increase from its current capacity of 89 mnt. The company's strategy revolves around cost optimization, with a concerted effort to reduce costs to fuel its growth trajectory. As per our FY26E estimates we expect Revenue/EBITDA to grow at a CAGR of 5.7%/13.1% respectively over FY24-FY26E. We maintain our rating to BUY and arrive at a target price of INR2,795 implying a EV/EBITDA multiple of 13.0x on FY26E EBITDA.
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