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Capacity expansion up to 32mtpa under progress

* ACEM (standalone) EBITDA came in at INR8.5b vs. our estimate of INR9.6b, due to higher-than-estimated opex/t (+5% vs. our estimate). EBITDA/t came in at INR1,038 (est. INR1,203) and OPM stood at 19% (vs. est. 22.5%). PAT stood at INR5.1b (20% below our estimate). Consolidated sales volume grew 3% YoY and EBITDA/t increased ~65% YoY/24% QoQ to INR1,228.

* The management highlighted that ~12% of clinker capacities were under maintenance, leading to higher costs. The company’s cement capacity has increased to 77.4mtpa and another ~32mtpa expansion is underway at various stages. This expansion will help the company reach 110mtpa capacity by FY27.

* We cut our FY24 EPS estimates by 5%, due to earnings miss, while maintaining estimates for FY25-26. ACEM trades at 20.1x/17.6x FY25E/FY26E EV/EBITDA (standalone). We maintain our Neutral rating on the stock.

EBITDA/t stood at INR1,038 (up 28% YoY); OPM surged 4pp YoY to ~19%

* ACEM’s standalone revenue/EBITDA/Adj. PAT stood at INR44b/INR8.5b/ INR5.1b (up 8%/36%/24% YoY and up 4%/down 11%/down 20% vs. our estimate) in 3Q. Sales volumes were up 6% YoY to 8.2mt (+5% vs. estimate).

* Realization/t increased 1% YoY (1% above our estimate). Opex/t declined 4% YoY, led by a 5% decline in variable/other expense (each). Freight cost/t grew 3% YoY. Employee cost declined 14% YoY to INR1.4b. Depreciation/interest cost increased 42%/80%, whereas ‘Other Income’ grew 22% YoY.

* In 9MFY24, revenue was up 11% YoY to INR131b, led by a 12% volume growth and 1% realization drop. EBITDA was up 58% YoY to INR25.7b and OPM was up 5.8pp YoY to 19.6%. Adjusted PAT was up 23% YoY to INR18b.

Highlights from the management commentary

* The Kiln shutdown had a INR150-200/t impact on EBITDA (INR50/t maintenance expense, higher sales of traded goods by INR30-40/t, and higher cost of clinker consumption).

* After the acquisition of ACC and ACEM, the company has realized cost savings of INR 400/t and anticipates the possibility of achieving additional savings of INR300/t in the next two years.

* EBITDA/t should reach INR1,400+ for ACEM. This does not consider price hikes. It expects RoCE of 19% and OPM of 25-26% by FY28.

Valuation and view

* We are factoring in EBITDA/t of INR1,234/INR1,285 in FY25/26E vs. INR1,057 in FY24E. The management guides for further cost-reduction initiatives, which can lead to a positive surprise if executed as planned.

*  It has further outlined its expansion plans of 12mtpa (apart from its earlier announced plan of 19.6mtpa additions); though clinker capacity additions seem to be lower (10.25mtpa aggregate). The stock trades at 20.1x/17.6x FY25E/FY26E EV/EBITDA (standalone). We incorporate Sanghi cement’s estimates in consolidated financials. We reiterate our Neutral rating with a TP of INR550 based on 15x FY26E EV/EBITDA (on a consolidated basis).

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