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EBITDA misses estimate due to weak realization

Sales volume rises 9% YoY (+3% vs. estimate)

*  ACC’s 1QFY25 performance was below our estimate primarily due to lowerthan-estimated realization (2% below). EBITDA at INR6.8b was 7% below our estimate; while EBITDA/t stood at INR664 vs. our estimate of INR736. OPM contracted 165bp YoY to ~13% (est. ~14%). PAT stood at INR3.7b vs. our estimate of INR4.2b, due to lower operating performance and other income.

*  Management remains positive on the industry demand outlook and expects cement demand growth of ~7-9% YoY in FY25, supported by higher govt. spending towards infrastructure projects, including the construction of roads and highways. In 1Q, the company reported volume growth of ~9% supported by an increase in premium products and efficiency improvement.

*  We cut our EBITDA by ~7% for FY25E due to persistent pricing pressure, while we maintain our FY26/FY27E. In our recent Thematic report, we upgraded ACC from Neutral to BUY given its attractive valuation and structural changes in operations. ACC trades at 12x/9.5x FY25E/FY26E EV/EBITDA. We value the stock at 12x Jun’26E EV/EBITDA to arrive at our TP of INR3,300.

Realization deteriorates 9% YoY; Opex/t down 7% YoY

*  Revenue/EBITDA/adj. PAT stood at INR51.6b/INR6.8b/INR3.7b (down 1%/12%/21% YoY and up 1%/down 7%/12% vs. our estimates) in 1QFY25. Cement volume grew 9% YoY to 10.2mt (up 3% vs. our estimate). RMC revenue declined 9% YoY to INR3.3b (26% above our estimate). The RMC segment reported an EBIT margin of 7% in 1QFY25 vs. 1%/5% in 1Q/4QFY24.

*  Opex/t dipped 7% YoY (flat QoQ), led by 14%/3%/2% YoY decline in freight costs/variable costs/other expenses. Employee costs declined 19% YoY/2% QoQ to INR1.6b. EBITDA/t stood at INR664 vs. INR818/802 in YoY/QoQ.

*  Interest cost/depreciation increased 32%/11% YoY, whereas ‘Other Income’ declined 11% YoY during the quarter.

Highlights from the management commentary

*  Kiln fuel cost declined 19%/9% YoY/QoQ to INR1.73/Kcal. The WHRS share in total power consumption stood at ~10% (up 1.6pp YoY/1pp QoQ) in 1Q.

*  Kiln heat consumption declined to 739 Kcal from 757 Kcal, with further improvement expected going forward. The company achieved a thermal substitution rate (TSR) of 11.1% and targets to achieve 27% by FY28.

*  The company’s cash & cash equivalent was INR27.5b vs. INR46.7b in Mar’24.

Valuation and view

*  ACC’s performance in 1QFY25 was below our estimate mainly due to lowerthan-estimated realization. Cement prices are estimated to remain under pressure in the near-term due to monsoons. However, it is witnessing steady improvement in opex/t led by various cost reduction initiatives.

*  Expected improvement in profitability, led by cost-saving initiatives, strong brand positioning, and structural changes in the operations (higher volume under MSA and leveraging group synergies), will drive re-rating in the stock. We value ACC at 12x Jun’26E EV/EBITDA to arrive at our TP of INR3,300. Reiterate BUY.

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