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ACC reported weak set of results for 1QFY25 as lower realizations and higher costs offset the impact of higher volumes. EBITDA at Rs6.8bn is down 12% YoY and 6% below our estimate. The company reported volumes of 10.2mn mt for the quarter, up 9% YoY driven by higher MSA volumes through Sanghi. EBITDA/mt saw sharp correction to Rs664/mt against our expectation of Rs739. The capex plan of the group is more skewed towards Ambuja and hence we believe that volume growth will be restricted in near term. We are building in modest 7% revenue and 8% EBITDA CAGR for ACC over FY24-26E. We have tweaked our volume and cost assumptions and as a result FY25 EBITDA is higher by 5% and FY26 EBITDA is lower by 2%. We value the company based in 12x FY26 EV/EBITDA to arrive at our revised TP of Rs2,700. We maintain our Reduce rating on the stock.

1QFY25 result highlights

ACC reported weak set of result as reported EBITDA at Rs6.7bn is 6.2% below our estimate. Though volume growth was at 9% YoY, realizations were weak with 3.3% QoQ drop but largely in-line with our estimate. ACC reported 10.2mn mt volumes which are 4.3% ahead of our estimates. However, we await data on intercompany sales and contribution from Sanghi unit and Asian concrete unit to understand actual growth delivered by the company. Realizations at Rs4,757/mt is down 3.3% QoQ and 8.3% YoY. Weak pricing in the industry has reflected in the realizations drop so far in all the companies. Operating costs were flat QoQ, largely in-line with our expectation. Kiln fuel cost improved from Rs. 2.14/kCal to Rs. 1.73/kCal with change of fuel basket and higher consumption of alternative fuels. EBITDA/mt came in at Rs664 against our expectation of Rs739 (Rs805 in 4QFY24)

Limestone mines lease expiry a concern

Adani group has 19 mining leases at the moment which are coming up for renewal in 2030. Out of these 19 leases, by 2030, only 11 leases will remain and the rest 8 will be fully utilized. The company has alternate plans for 3 sites out of these 11. However, fate of these mines on whether they will come up for rebidding or will be given to existing lease holder remains uncertain.

Visibility on future volume growth low

Adani group is planning large capex to increase its capacity from current 89mn mt to 140mn mt. Out of the 51mn mt planned capex, 23mn mt is under construction and 28mn mt is under planning stage. Most of the upcoming clinker capacities and associated grinding capacities are currently planned in Ambuja and only 4mn mt grinding capacity is coming up in ACC. As a result, we expect ACC’s volume growth to lag industry as well as Ambuja’ growth.

Valuation and Outlook

We are building in 7%/8% revenue/EBITDA CAGR for the company over FY24-26. We value the stock based on 12x FY26 EV/EBITDA to arrive at our revised TP of Rs2,700. We maintain our Reduce rating on the stock given capacity constraints.

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