Maintain ‘buy’ on ACC with target price of Rs 1,830

ACC continue to surprise positively for third consecutive quarter with Q3CY20 EBITDA increasing 21% YoY to Rs 6.7bn – higher than our /consensus estimates. Volumes grew 1.4% YoY vs our estimate of 2% YoY decline; while realisation grew 2.8% YoY (I-Sec: 2% YoY). Cement EBITDA/te increased 25% YoY to Rs 1,015/te; while blended EBITDA/te grew 19% YoY to Rs 991/te. ACC’s cost efficiency programme ‘Parvat’ which seems to be targeting cost savings of Rs 150-200/te and increased traction in MSA with ACEM would drive sustainable improvement in ACC’s profitability, in our view. Factoring-in better margin, we increase our CY20E-CY21E EBITDA 6-7% and raise our target price to Rs 1,830/share (earlier: Rs 1,625) based on 9x Sep’22E EV/E on half-yearly roll-over. Maintain BUY.

Revenues stood flat YoY at Rs 34.7bn (I-Sec: Rs 33.3bn): Grey cement realisation increased 2.8% YoY (declined 3.4% QoQ) to Rs 4,877/te mainly led by strong low double-digit increase in South. Cement prices have further increased by Rs 10- 20/bag across most regions w.e.f. Oct’20 mainly to mitigate recent cost increases and average pan-India prices are now up ~6% YoY. Volumes including clinker sales increased 1.4% YoY (broadly in-line with industry average) to 6.77mnte owing to improved demand in retail and rural segments, with gradual pick-up in demand from commercial and industrial segments too. Management expects increased government thrust on affordable housing and infrastructure, and coupled with improved rural housing demand, would drive cement demand in the near term.

RMC revenues declined 41% YoY to Rs 2bn led by 51% YoY decline in volumes on continued lockdown in urban centres. RMC EBITDA loss stood at Rs 160mn vs positive EBITDA of Rs 154mn in Q3CY19. Other operating income increased 9% YoY / declined 15% QoQ to Rs 698mn.

Cement cost/te declined 1.5% YoY/ 2.9% QoQ to Rs 3,965/te. Purchase of third- party products increased sharply from Rs 0.9bn to Rs 2.3bn mainly led by MSA with ACEM. Excluding these, raw material plus power and fuel plus freight cost/te declined 6% YoY (flat QoQ) on optimisation of source mix, better supply-chain management, higher usage of AFR in the fuel mix and improved operational efficiencies.