ACC Ltd. share price target

ACC 4QCY19 EBITDA was marginally (+5%) higher than our estimate but 6% lower than consensus estimate. Surprise in the result was volume increase of 4% YoY, where as we were expecting volume to be flat. EBITDA /t stood at Rs697 vs Rs653 YoY and our est of 665. Pricing decline at 4% QoQ was in line with our estimate. RMC division reported 8% vol. increase with sharp improvement in EBIT margins of 7% YoY. We maintain our estimate with volume increase of 3% pa and EBITDA/t of Rs850/865 for CY20/21. Maintain accumulate rating with target price of Rs1,596 which is based on 10x (unchanged) CY20E EV/EBITDA. Catalyst for stock performance is volume increase and price increase higher than...

We trim our EBITDA est for CY20/21E by 9/1% each factoring in weak pricing impact. Despite weak pricing, we expect ACC's margin to sustain at ~Rs 800/MT levels driven by energy cost tailwinds. The upcoming expansions of 6mn MT in central and east markets will drive volume growth CY22 onwards. Our EBITDA est for ~5% lower CY20/21E are We maintain BUY with a TP of Rs 1780 (10x CY21E EBITDA), implying EV of USD 140/MT. We continue to apply 20% discount to its 5-yr mean, for ACC's significant delays in expansions and subsequent continued market share loss. We maintain BUY on ACC with a revised TP of Rs 1,780 (11x its CY21E consolidated EBITDA, implying EV of USD 140/MT). While ACC closed CY19 with subdued 4QCY19 performance in the cement segment, working capital release boosted its CY19 OCF to a decade high!

We maintain our CY20/21 Volumes were up 4% YoY at 7.8mt, driving a 4% YoY increase in revenue to Unitary cost declined 1% YoY (-2% QoQ) to INR4,536/t. Cost reduction was a result of better source mix optimization, logistics efficiency and better However, cement realization declined 5% QoQ (+0.5% YoY) to INR4,615/t Subsequently, EBITDA/t declined 19% QoQ (+7% YoY) to INR697 (our 9%; margin was at 13.3% (+0.81pp YoY, -2.46pp QoQ). Packing material cost ACC has faced significant de-rating over the past five years and now trades at 35-55% discount to peers such as Shree Cement, UltraTech and Ramco. Further, ACCs ongoing 18% capacity expansion in central India provides further headroom for strong volume growth post CY21. We expect RoE to improve further post commissioning of the ACC has faced significant de-rating over the past five years and now trades at 35-55% discount to peers such as Shree Cement, UltraTech and Ramco.

31 January 2020 20.4 19.2 17.4 2.4 2.2 2.0 During CY06-16, ACC lost ~450bp in all-India volume market share from 12.6% in CY06 to 8.2% in CY16. While industry delivered volumes at 6.5% CAGR during this period, ACCs volumes witnessed meager 2.0% CAGR. The market share loss was due to (a) change in management, as Holcim acquired majority ownership in CY05, (b) lower capacity addition at 5% CAGR in CY06-15 (v/s 10% for the industry), and (c) rise of aggressive players like Shree, UltraTech and Dalmia Bharat. The sustained loss in market share led to underutilization of capacities, which impacted RoE of the company, resulting in significant valuation de- rating. Utilization declined to 72% in CY16 from 96% in CY06, while RoEs declined to 8% in CY16 from 40% in CY06.

ACC reported good set of 3QCY19 results, driven by lower than expected operating costs and higher volumes. Net sales/ EBITDA was 3.2%/11.4% above our estimates while PAT was lower by 7.4% as we were building in reduction in corporate tax rate which the company has still not adopted. Volumes at 6.44mnmt were down by 1.7% YoY against our expectation of 4% decline. Pricing decline at 6% QoQ was in line with our estimate. 8% YoY growth in premium segment products would have curtailed the volume decline in our opinion. Operating costs increased marginally by 1% compared to our estimate of 2% growth. RMC division reported yet another double digit growth with 11% volume growth...

We estimate ACC to deliver 10/16% EBITDA/PAT CAGR during CY18-21E. Given ACC's healthy cash flow and RoE, and its major expansion plans (20% capacity increase by end CY21E/early CY21E), current valuation (of 8.8/8.2x its CY20/21E EBITDA, EV/T of USD 115) looks inexpensive. We reiterate BUY with a TP of Rs 1,940 (ascribing 11x to its Jun-21E EBITDA and 0.5x to its CY20E CWIP). Key risks: Sharp roll back in cement prices, continued demand sluggishness, rebound in energy costs. We reiterate BUY on ACC with TP of Rs 1,940 (11x its Jun-21E consolidated EBITDA and 0.5x its CY20E CWIP). ACC delivered strong performance in 3QCY19, aided by both pricing and cost tailwinds despite subdued demand.

ACC reported an in line operational performance but disappointed on PAT front due to higher-than-expected tax expenses. Revenues grew 3% YoY to | 3,464 crore (marginally below I-direct estimates) on the back of healthy realisation growth, at | 5,380/t, up 4.7% YoY. Volumes declined 1.7% YoY to 6.44 MT owing to muted demand scenario during the quarter due to a weak economic scenario and extended monsoons. The RMC division continued to grow in double digits, posting 11% YoY volume growth to 0.81 lakh cubic metre. Profitability witnessed an improvement during the quarter...

Demand remained sluggish across the regions due to prolonged monsoon, weak sentiments and lower govt spending. We expect revival in demand in H2FY19 though at a very slow pace on the back of measures undertaken by govt to release contractor dues, increase infra spending and improve liquidity. Nevertheless, All-India demand growth would stuck in the range of 2-3% for FY20E. Weak demand recovery would increasingly put pressure on...

Strong Performance Continues Despite Tepid Volume Growth Notwithstanding dismal sale volume, ACC has reported a strong performance in 3QCY19 aided by higher-than-estimated average realisation and reduction in unitary opex. Its core operating profit grew by a strong 32% YoY to Rs4.9bn. EBITDA/tonne stood at ~Rs747 (as against Rs547 in 3QCY18 and Rs943 in 2QCY19), which is ~Rs200/tonne higher than our estimate. The variance is primarily led by: (a) higher realisation (Rs80/tonne above our estimate); and (b) lower opex (~Rs110/ tonne below our estimate). Notably, higher sales in North and Central regions (~40% of total) and persistent volume traction in premium and value added products were the prime reasons for better...

However, premium product volumes increased 8% YoY. However, blended EBITDA/t was up 28% YoY (-20% QoQ) to INR864 due to healthy realizations. Thus, EBITDA increased 26% YoY (-29% QoQ) to INR5.56b (in-line). RMX volume increased 11%; value-added solutions (VAS) volume too grew ACC has been working on improvement in supply chain efficiencies and product Increase in power & fuel cost was partly mitigated by fuel source mix Freight cost/t increased due to higher handling and warehouse cost Fixed cost and sales & general administration cost were lower than the previous The company achieved reduction in packing material on account of re- negotiation and PP granule price reduction. We value the stock at 10x Jun21E EV/EBITDA (30% discount to UTCEM) to arrive at a TP of INR1,900 (implied EV/tonne of USD120 on CY20). We value the stock at 10x Jun21E EV/EBITDA (30% discount to UTCEM) to arrive at a TP of INR1,900 (implied EV/tonne of USD120 on CY20).