ACC Ltd. share price target

ICICI Securities Ltd | Retail Equity Research ACC's Q4CY16 numbers were in line with our estimates. Revenues dipped 6.1% YoY to | 2,671.6 crore (vs I-direct estimate of | 2,705.7 crore) led by 9.2% YoY decrease in volumes to 5.5 mt (below I-direct estimate of 5.7 mt). Realisation increased 3.3% YoY to |4,902/t (above I-direct estimate of |4,724/t). EBITDA margin decreased 28 bps YoY to 7.2% (vs I-direct estimate of 7.1%) due to higher fixed cost. EBITDA/tonne was flat YoY to...

First, as expected, non-secular events like demonetization dented the volume. Yet output from newly commissioned plants in east helps ACC with some breather. Second, other than the adverse operating leverage, the sequential patterns in energy cost and freight optimization throws a puzzle. And finally, even after adjusting for (a) cancelled coal blocks provisions at Rs385mn; and...

Subdued sales volume along with visible pressure on operating cost owing to surge in freight and fuel costs led to EBITDA contraction of 11% YoY to Rs1.92bn. However, average realization is up by ~1.6% YoY and 0.7% QoQ due to 27% YoY growth in sales of premium segment products. EBITDA/tonne stood merely at Rs343 vis--vis Rs405 and Rs430...

A miss by a mile. First, as we stressed after UTCEM results, pan-India players are doubtless a victim of stronger monsoons. Second, in comparison with base year, rising energy costs offset the higher use of pet coke in fuel mix, we fear. Third, even other operational efficiency measures like reducing lead distance, for instance, seems to have shot below the target. And contrast all this with flat realizations, the fall in EBITDA, perhaps, was written all over the wall. Maintain REDUCE....

Revenues dipped 9.8% YoY to | 2,472.8 crore (below I-direct estimate of | 2,719.6 crore) led by 9.6% YoY decline in volumes to 5.1 MT (vs. I-direct estimate of 5.6 MT). Realisation was flat at | 4,877 (vs. I-direct estimate of | 4,824) The EBITDA margin fell 51 bps YoY to 9.1% (vs. I-direct estimate of 12.7%) due to an increase in employee expenses (up 17.8% YoY) The company has commissioned Jamul clinkering project (2.8 MT) and grinding unit (1.1 MT) during the quarter. Grinding units at Sindri...

ACCs Q3CY16 operational performance was significantly below our estimates due to lower volumes and higher costs. EBITDA of Rs 2.25 bn (-15% YoY) was 36% lower than our & consensus estimate of Rs 3.5 bn as the volume came 9% lower than expectations. EBITDA/t stood at Rs 443/t (-6% YoY) which also came Rs 185/t lower than our estimate of Rs 629/t led by higher costs. Going ahead, we cut CY16E/17E estimates to factor in weak Q3CY16 performance.

ACC has reported a dismal operating performance as EBITDA declined by ~15% yoy to Rs2.25bn (vs. our estimate of Rs2.64bn) owing to poor sales volume (-9.6% yoy & -17% qoq) and surge in operating cost/tonne (up ~0.4% yoy & ~10% qoq). Hardening in fuel prices along with Rs190mn DMF provisioning against royalty on coal led to ~24% qoq increase in Power & Fuel cost/tonne. EBITDA/tonne stood at Rs430 in 3QCY16 compared to Rs456 & Rs649 in 3QCY15 & 2QCY16, respectively. Sales volume de-grew by 9.6% yoy & 17.2% qoq to 5.07mnT owing to demand contraction led by heavy rainfall/floods and sand crisis in Eastern,...

ACC is perceived as the most sensitive large cap Cement stock to play price recovery, with high scope for margin expansion. The stock currently trades at a 42% discount to peers in terms of EV/ton (FY18E), making it appear attractively valued. While we are reasonably confident of an impending upturn in the industry, we do not expect sharp margin improvement for ACC. Its profitability is unlikely to catch up with peers, given its inefficient operations. Capacity constraints in growing markets would result in sustained market share loss. We retain our Neutral rating and our target price for now.

Valuation:  With new growth avenues (Jamul plant) and improving industry dynamics, we expect ACC to deliver a better 2HCY16. However, medium-term concerns on cost structure and efficient utilization of excess clinker from its new plant in Jamul remain. Even in an upturn, ACC’s operating margins would lag industry due to its inefficient operations. Its capacity constraints would result in sustained market share loss. The stock currently trades at a 42% discount to peers in terms of EV/ton (FY18E). They believe the valuation gap with its more efficient peers would persist and retain Neutral rating for now.

8 Operating margin is 1.3% lower vs. our expectation, largely due to no volume growth (LafargeHolcim'slackoffocusinaddingcapacitieshasbeenthekeyreason). 9 Operationalefficiencieshavesustained;realisationtrendappearsinlinewithpeers. 9 NeartermpositivetriggersarepresentconsolidationwithAmbujaandcommissioning ofJamulexpansionbutweseeallthepositiveslargelyfactoredin. 8 Despiteupgradingthetargetmultipleto14xCY17EV/EBITDA(vs.12xearlier),andeven afterconsideringthebenefitsofconsolidationwithAmbuja,weseenoupside. 8 WemaintainSellwitharevisedpricetargetofRs1,430(Rs1,230earlier)....

ACC disappointed again (EBITDA/t Rs 654 vs. estimate of Rs 710). Both volumes (6.1 mT, -1.3% YoY) and realisations (Rs 4,267, -2.7% YoY, 2.3% QoQ) were muted, with the latter being the bigger miss, given the sharp pricing spikes in the quarter. Energy costs softened (-13.3% YoY, -4.3% QoQ), as ACC increased its reliance on pet-coke to ~60% of the kiln fuel mix (from 15% in 2QFY15). ACC lagged in profitability and volume growth vs. peers. As such its valuations (~10.5x CY17 EV/EBITDA and US$133/t) are expensive. We do not expect any meaningful synergies from the sale of Holcim’s stake to Ambuja, which has been cleared by the government. While ACC will benefit from improving macros, it will still lag peers owing to its legacy assets and high operating costs, which undo the brand premium it enjoys (will it, forever?). HDFC Securities Maintain SELL with a TP of Rs 1,235 (8.0x CY17 EV/EBITDA, US$100/t).

Trendlyne has 17 reports on ACC updated in the last year from 7 brokers with an average target of Rs 158.7. Brokers have a rating for ACC with 1 downgrade,3 price downgrades,2 upgrades,6 price upgrades in past 6 months and 5 price downgrades in past 1 Year.