Investors in ACC have reason to cheer as volume posted double digit growth in Q2CY17, up 10% y-o-y, after a gap of >5 years and is set for ~10% jump in CY17, on low base of ~9% dip in H2CY16.
While realisations disappointed marginally, up ~6% q-o-q, EBITDA, up 38% y-o-y surpassed estimate 6% due to higher incentive-led other operating income. Factoring H1CY17 performance and current price trend (stable q-o-q despite monsoon), we expect CY17 consensus earnings to be revised up ~8-10%, a boost for the stock even as our estimates stay unchanged. Factoring volume resilience and the anticipated demand uptick, we perceive no risk to our CY18E (~10% ahead of consensus) and maintain ‘buy’ with revised target price of Rs 1,914. Rs 1,685 earlier on FY19E.
Driven by ramp up of new plants at Jamul and Sindri, commissioned in H2CY16, volumes surged 10% y-o-y to 6.74mt (in line) and ~2% q-o-q. Factoring the run rate, CY17 volume growth looks set to jump 10%. Realisations rose 5.7% q-o-q versus our 6.5% estimate and so far in Q3CY17 have remained largely flat versus Q2CY17.
Costs were a mixed bag with variable cost/t being 2% below, while fixed cost 4% ahead of estimate. Total cost/t, however, was flat q-o-q and largely in line. High other operating income at Rs 1.4 billion surprised, rising ~89% q-o-q, driven by higher incentives. The run rate is estimated to stay at ~Rs 1.0 billion going ahead.
While core EBITDA/t at `735 rose 9% y-o-y, total EBITDA at Rs 6.35 billion grew 38%. Effective tax rate of 33% stood higher than our 25% estimate, leading to PAT at `3.2 billion coming largely in line with our Rs 3.3 billion estimate.
The pan-India player will be beneficiary of the anticipated sector upturn, while resilience in volumes will keep earnings momentum intact. We change our valuation methodology to EV/EBITDA (PE earlier) as it is more representative of the cyclical and capex-intensive nature of the cement sector. With improved visibility for our earnings estimates, we value ACC at 14x FY19E EV/EBITDA and arrive at revised target price of Rs 1,914. We maintain ‘buy/SP’.