Buy ACC; target of Rs 1774: Emkay Global Financial

Emkay Global Financial's report on ACC

ACC’s Q3 results were above our estimates, led by higher-than-estimated realization (up 3.5% yoy vs. estimate of 1.4% growth). EBITDA stood at Rs6.7bn vs. estimated Rs6.3bn and EBITDA/ton came in at Rs1,073 vs. estimated Rs958. Key positives: 1) 10.2% yoy decline in freight costs, despite increase in diesel prices, due to higher inter-company purchases and increase in direct dispatches, in our view; 2) 20% yoy decline in other expense; 3) realization decline restricted at mere 1.1% qoq. Key negative was a 43% yoy decline in RMC volume, leading to a 44.3% yoy fall in revenue. Cement EBITDA/ton stood at Rs1,073 vs. Rs851/Rs1,173 in Q3CY19/Q2CY20. Grinding capacity expansion of 1.1mt in Sindri, Jharkhand, is expected by Mar’21, while capacity expansion of 4.8mt in the Central region is expected by CY22-end.

Outlook

ACC started a cost reduction initiative “Project Parvat” in CY19 with an aim to reduce operating costs by Rs200/ton till CY21. Valuations are attractive at 8.8x/8.1x CY21/CY22E EV/EBITDA and an EV/ton of US$95. We maintain Buy and OW in sector EAP.

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