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Result Synopsis

In 2QFY25, ACL’s consolidate numbers were better than other peers. Revenue/ EBITDA/ Volume/ Realization/ EBITDA per tonne is broadly in line with our estimates. Revenue up by 1.2% YoY ( -9.6% QoQ), is 4% ahead of our estimate. Higher revenue despite seasonal impacts led by better realization and volume numbers. Volumes up by 9.1% YoY (-10% QoQ), is 1.4% ahead of our estimate. Realization down by 7.2% YoY (flattish QoQ), is 2.6% ahead of our estimates. EBITDA in absolute figure down by 14.6% YoY (- 10.5% QoQ), is 3.5% ahead of our estimates. While EBITDA margin stood at 14.8% in 2Q FY25 vs. 17.5% in 2Q FY24. EBITDA/tn stood at Rs783 (-21.8% YoY, flattish QoQ) as compared to our estimate of Rs767. Better EBITDA/tn led by decline in overall opex/tn (-4.2% YoY, +1% QoQ). Adj. PAT decline by 27.7% YoY (-4.7% QoQ), is 14.6% below our estimate. Adj. PAT miss due to exceptional item of Rs1562mn.

Ongoing capacity expansion to drive volume, factoring 11.6% volume CAGR over FY24-27E:

On consolidated basis, ACL at present capacity of 95mtpa enjoys 15% of market share and expected to reach 20% by FY28. The company is doubling the capacity by FY28 by adding ~45mt of capacity across the demand rich regions though organic and inorganic roots. At present the avg. capacity utilization stands at 63% (1HFY25). We believe, avg. capacity utilization at 63% due to higher addition and near-term sluggish demand. However, recent acquisition with Penna (in southern region), Master Supply Agreement with Sanghi Industry (Western region) and ACC to gain volumes going ahead at lower cost. As per our observation, higher capacity addition is southern region to dent ROE as the avg. capacity utilization in the region is lower at 55-60%. Until unless any sharp movement in government projects in southern region, we don’t see improvement in capacity utilization. Recently the company has done binding agreement with Orient Cement (in southern region) and the deal is expected to conclude in near-term is likely to have synergy benefits.

Cost initiatives to save margins: 

Despite regional and weak pricing challenges, the company is able to deliver bottom line growth during the quarter, primarily driven by improved cost efficiency level. We see, ACL’s EBITDA to improve further led by various cost initiative programme i.e., higher usage of green energy, usage of captive coal mining, reduction in lead distances through warehouse optimization, and operating leverage benefits. The long-term target for cost savings of Rs450-500/tn looks feasible but can expect it may take 1-2 years of time to reflect in numbers. We are couscous on margin front due to weak pricing and sluggish demand. And building EBITDA/tn of Rs913/ Rs993/ Rs1166 for FY25E/ FY26E/ FY27E.

Outlook & Valuation:

We see the volume growth of 18.3% CAGR over FY24-FY27E, while factoring lower realization of -0.7% / -0.4%/ +0.4% realization for FY25E/ FY26E/ FY27E. We believe, some improvement in realization from mid of FY26E and volume as well. And building Revenue/ EBITDA/ PAT growth of ~11.4%/ ~14.5%/ ~12.6% CAGR over FY24-27E. At CMP the stock is trading at 14x forward FY27E EV/EBITDA. We believe the stock is over valued at present. Considering the weak pricing and sluggish demand we are valuing the stock at 16x Sep’26 EV/EBITDA to arrive at a target price of Rs471, recommend SELL. Any sharp price hike and demand coupled higher cost saving are the key upside risk to our recommendation.

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