Buy ACC Ltd For the Target Rs.2,462 by Choice Broking Ltd
EBITDA beat owing to one-offs, core business growth remains encouraging
* Q3FY25 revenues came at INR58,961 Mn, (vs CEBPL est. INR49,717 Mn), up 19.9% YoY and 28.0% QoQ. The revenue includes one off income from government grants of INR7,201 Mn. After adjusting this one off, company had reported revenue of INR51,759 Mn, up 5.2% YoY and 12.3% QoQ. Sales volume for the quarter came at INR10.7 Mnt, up 20.5% YoY and 15.1% QoQ.
* EBITDA for Q3FY25 was reported at INR11,094 Mn, (vs CEBPL est. INR5,952 Mn), up 22.8% YoY and 158.5% QoQ. After adjusting one off, company had reported EBITDA of INR3,893 Mn, down 56.9% and 9.3% QoQ.
* PAT for Q3FY25 reported at INR10,891 Mn, (vs CEBPL est. INR3,640 Mn), up 106.5% YoY and up 365.7% QoQ. After adjusting one off, company had reported PAT of INR 5,575 Mn, up 5.7% YoY and up 138.4% QoQ. Reported EPS for Q3FY25 is INR57.9. Adjusted EPS is INR29.6.
Total cost/t savings to make EBITDA grow at 9.5% CAGR- We believe the management is on track to achieve its target of reducing total costs by INR 500/t over the next three years. Significant portion of these savings, ~INR 330/t, will stem from reductions in power & fuel costs and freight expenses - commissioning of a 200MW solar power plant at Kavda (green energy focus) & logistics optimization by reducing lead distances. As a result of these initiatives, we forecast EBITDA to grow at a CAGR of around 9.5% from FY24 to FY27.
Capacity Expansion in East and Central regions coupled with strategic pricing and focus on premium products to drive revenue growth: ACC is aiming to expand its total capacity from 39.9 Mnt to 45 Mnt, with capex of INR 10,000 Mn for FY26. Most of the expansion will be concentrated in the East and Central regions. Additionally, the price hikes implemented in December have been well absorbed by the market, and further price increases are expected in the near term. We anticipate that the increase in capacity share in East and Central regions and focus on premium products will drive both volume and pricing growth. With improving demand and pricing conditions, we forecast the company’s revenue to grow at a CAGR of 5.9% from FY24 - FY27.
View & Valuation: We revise our FY26/27 EPS estimates by 3.9%/-3.8% while maintaining our rating to ‘BUY’ with a revised TP of INR2,462, valuing it at 11x on FY27 EV/EBITDA. We are optimistic about cement demand and price improvements and expecting to rebound in Q4FY25. Additionally, cement industry is expected to grow by 4-5% in FY25, with a focus on improving construction activities in Q4, particularly in rural and urban housing developments.
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SEBI Registration no.: INZ 000160131
