Buy ACC; target of Rs 1850: ICICI Direct

ICICI Direct's research report on ACC

ACC Ltd reported improved Q3CY20 results with sales volume bouncing back to pre-Covid levels during the quarter supported by healthy realisations.Revenues increased 0.3% YoY to Rs 3537.3 crore (vs. I-direct estimate: Rs 3311 crore) led by sales volume growth of 0.8% YoY to 6.49 MT. Strong rural demand along with revival of infrastructure projects supported sales volume growth. RMC volumes, however, fell 43% YoY to 0.46 million due to localised lockdowns in the urban market. Sales realisations stayed healthy despite monsoons during the quarter. They grew 0.5% QoQ (down 0.5% YoY) to Rs 5450/t (vs. I-direct estimate: Rs 5300/t). Margins for the quarter improved 319 bps YoY to 19% (vs. I-direct estimate: 16.1%). EBITDA/t for the quarter was at Rs 1035/tonne (vs. I-direct estimate: Rs 855/tonne), an increase of 19.6% YoY. Except RM costs, all major cost heads were down by average 14% YoY. A better operating performance led the company to report net profit of Rs 363.9 crore that was ahead of our estimated net profit of Rs 312.3 crore. The Board has appointed MR Kumar (Chairman, LIC) as an Additional Director with effect from October 19, 2020.

Outlook

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, improved cash flow remain key positives. Post a strong performance with improved outlook, we upgrade our rating to BUY with a revised target price of Rs 1,850 (valuing at 10x CY21E EV/EBITDA implying an EV/t of ~$110).

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