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Lower realization and higher variable cost led EBITDA miss

Commissioned clinker unit at Ametha, Madhya Pradesh in Oct’23

* ACC reported EBITDA of INR5.5b vs. our estimate of INR6.8b (19% below our estimate) in 2QFY24, due to lower blended realization (~3% miss) and higher variable cost/t (7% above our estimate). EBITDA/t came in at INR677 (vs. estimate INR820). However, adjusted PAT stood at INR3.8b (in line with our estimate), led by a sharp increase in ‘other income’ (up 3x YoY; up 160% vs. our estimate).

* The management indicated that demand remains robust, driven by increased spending on housing and infrastructure projects. It has initiated commercial production with a 3.3mtpa clinker capacity at its Ametha plant in Madhya Pradesh. Additionally, the share of premium products in trade sales increased 1.5pp YoY to 32%. Furthermore, the company witnessed a net addition of 534 dealers across various markets during the quarter.

* We broadly maintain our FY24/FY25 estimates. ACC trades at 11x/9x FY24E/ FY25E EV/EBITDA and USD105/USD95 FY24E/FY25E EV/ton. We value ACC at 9.5x Sep’25E EV/EBITDA (earlier FY25E) to arrive at our TP of INR2,150. We reiterate our Neutral rating on the stock.

Volume grew 18% YoY; EBITDA/t came in at INR677 (est. INR820

* Revenue was up 11% YoY to INR44b (down 5% vs. our estimate) and EBITDA has grown 35.6x (on a low base) to INR5.5b (down 19% vs. our estimate). The company reported a net profit of INR3.8b (in line with our estimate) vs. adjusted net loss of INR766m in 2QFY23. Cement sales volumes grew 18% YoY to 8.1mt (down 2% vs. our estimate). RMC revenue declined 13% YoY (17% below our estimate). 

* Cement realization declined 4% YoY (2% below estimate). However, Opex/t dipped 17% YoY, led by 2%/18%/22% YoY decline in variable cost/freight cost/other expenses. Employee cost declined 10% YoY to INR1.9b. EBITDA/t stood at INR677 vs. INR23/818 in YoY/QoQ. OPM was up 12pp YoY to 12.4%.

* ACC’s 1HFY24 revenue was up 14% YoY to INR96.4b, led by 21% surge in volume and 7% drop in realization. EBITDA has grown 3x YoY to INR13.2b and OPM was up 8.5pp YoY to 13.7%. PAT has grown 5.8x YoY to INR8.5b. OCF stood at INR11b vs. operating cash outflow of INR3.3b in 1HFY23. Its cash and cash equivalent was up by INR4.1b QoQ to INR36.34b as of Sep’23.

Highlights from the management commentary

* Clinker factor improved to 56.6% from 57.2%, leading to reduction in power consumption by 6.4 Kwh/t to 73.9 kwh/t and reduction in kiln fuel cost to INR1.85/Kcal vs. INR3.19/Kcal YoY (INR2.13/Kcal in 1QFY24).

* The WHRS with a combined capacity of 22.4MW at Kymore and Jamul is now fully operational. Additionally, a 16.3MW WHRS facility at the Ametha plant is slated to be commissioned in 3QFY24. The share of WHRS in total power consumption will increase to 9% by FY24-end vs. 3% in 4QFY23.

* In logistics efficiencies, the company’s road direct dispatch increased to 58% from 52% and the rail coefficient was up 5pp YoY to 34%.

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