ACC Ltd. share price target

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).

With strong performance and positive outlook, we upgrade our rating on the stock to BUY with revised target price of Rs. 1,747 based on rollforward valuation multiple of ~11.0x CY20E EV/EBITDA. Improved product mix with strong realisation ACC registered revenue growth of 7.8% YoY to Rs. 4,150cr in Q2CY19. Cement business contributed 93.0% of total sales (+7.3% YoY), followed by Ready-mix concrete (+14.1% YoY). Cement sales volume remained stable YoY at 7.2mn tonnes, whereas RMC volume grew 10.4% YoY to 0.85mn cubic metres helped by contribution from eight new RMC plants. Q2CY19 EBITDA totalled Rs. 783cr (vs Rs. 625cr in Q2CY18),...

We estimate ACC to deliver 13/17% EBITDA/PAT CAGR during CY18-20E. Given ACC's healthy cash flow and RoE, and its firming up major expansion plans (20% capacity increase by end CY21E/early CY21E), current valuation (of 9.3x/8.8x its CY20/21E EBITDA, EV/T of USD 120) is inexpensive. We reiterate BUY with a TP of Rs1,930 (ascribing 11x to its Jun-21E EBITDA and 0.5x to its CY20E CWIP). Key risks: Sharp roll back in cement prices, rebound in energy costs (crude led). We reiterate BUY on ACC with TP of Rs 1,930 (11x its Jun-21E consolidated EBITDA and 0.5x its CY20E CWIP).