ICICI Direct recommended hold rating on ACC with a target price of Rs 1450 in its research report dated July 21, 2020.
ICICI Direct's research report on ACC
ACC Ltd surprised positively with margin expansion of 313 bps YoY leading to better profitability during Q2CY20. While revenues, volumes declined, they were broadly in line with our estimates. Sales volumes declined 33.7% YoY to 4.8 MT (in line with I-direct estimate: 4.85 MT) due to the Covid-19 induced nationwide lockdown. RMC volumes also declined sharply by 83% YoY to 0.15 million. Sales realisations dipped 3.3% YoY to Rs 5421/tonne (vs. I-direct estimate: Rs 5383/t). As a result, operating revenue for the quarter de-grew 36% YoY to Rs 2602 crore (vs. I-direct estimate: Rs 2611.3 crore). Despite low volume offtake, margins for the quarter improved 313 bps YoY to 20.2% (vs. I-direct estimate: 13.4%). EBITDA/t for the quarter was at Rs 1095/tonne (vs. I-direct estimate: Rs 719/tonne), up 14.4% YoY. Better operating performance led the company to report net profit of Rs 271 crore, far ahead of our estimated net profit of Rs 167 crore.
Outlook
While this quarterly performance remained healthy on the margins front, the structural issues with respect to CoP need to be addressed for sustenance of healthy margins in the long run. On the positive side, strong B/S and improved cash flow remain key positives. Post the recent rally in the stock price, we now downgrade the stock to HOLD with a revised target price of Rs 1,450/share (valuing at 10x CY21E EV/EBITDA implying an EV/t of ~$85).
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