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Impressive performance, improved margins

ACC Ltd. is a leading Indian cement company with 17+ cement plants and 82 ready-mix concrete (RMC) plants. It manufactures a range of cement and blended cement.

* In Q1FY24, ACC’s revenue grew 16.4% YoY to Rs. 5,201cr, driven by the rise in sales volume.

* EBITDA surged by 80.9% YoY to Rs. 771cr, with EBITDA margin expanding by 530bps to 14.8%, driven by cost reductions. Additionally, PAT surged by 105% YoY to Rs. 466 cr.

* ACC posted strong performance during the quarter owing to improved operational efficiency and higher sales volume. Continued growth will be propelled by positive demand trend in the cement industry, robust sales volume, improved operational efficiency, continuous capacity expansion, and synergy advantages. Hence, we upgrade our rating to ACCUMULATE on the stock with a revised target price of Rs. 2,325 based on 11.5x FY25E adj. EPS.

Higher cement sales boost revenue

Revenue increased 16.4% YoY to Rs. 5,201cr in Q1FY24 driven by strong demand for cement products, brand recognition efforts, and strategic positioning of premium products. Sales volume also surged 23.7% YoY, reaching 9.4 metric tonne, supported by rise in blended cement volume and improved operational efficiency. Additionally, the company maintained its dominant position in key markets

Lower costs expand margins

In Q1FY24, EBITDA surged by 80.9% YoY to Rs. 771cr, and EBITDA margin expanded by 530bps YoY to 14.8%. Growth was primarily attributed to significant reductions in raw material costs, power and fuel expenses, freight and forwarding costs, and other expenses, driven by synergies with the parent company and group entities. Cost of kiln fuel decreased 15.5% to Rs. 2.13 per ‘000kCal from Rs. 2.52 per ‘000kCal. Improvements in energy efficiency, workforce productivity, and operational efficiency helped in cost optimisation. Furthermore, PAT surged 105% YoY to Rs. 466cr

Key highlights

* Waste heat recovery systems (WHRS) at the Jammu and Kymore plants, with a combined capacity of 22.4 MW, are now operating at full capacity. WHRS contribution has increased to 8.4% from 2.0%. Additional 16.3MW is set to be operational later this year, bringing the total capacity to 46.3MW.

* The integrated cement unit at Ametha is scheduled to commence operations in Q2FY24, boosting clinker capacity by 3.3MTPA (with EC approvals secured for 2.75MTPA) and increasing grinding capacity by 1MTPA.

* The RMX and construction chemicals sectors are experiencing strong growth and are expected to accelerate further due to increased investments in construction projects and urbanisation.

Valuation

ACC had a strong quarter, achieving substantial revenue growth and improved margins due to operational excellence and increased sales volume. Ongoing efforts to enhance operational efficiency, achieve continuous capacity expansion, and leverage group synergies will remain key growth drivers for the company in the near future. Furthermore, the cement industry is in a positive demand cycle, and favourable cost factors are expected to sustain the company’s growth trajectory in the upcoming quarters. Hence, we upgrade to ACCUMULATE with a target price of Rs. 2,325 based on 11.5x FY25E adj. EPS.

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