ACC Rating | Buy — A stellar performance by the company

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October 19, 2019 2:12 AM

Calibrating 9mCY19 performance and the estimated recovery, we see limited risk to our CY19e and CY20e earnings. We also introduce CY21e earnings with modest 4% y-o-y Ebitda growth, implying flat Ebitda/t.

ACC, ACC cement, Rating, performance, company news, market newsFixed costs were under control, falling 2% y-o-y. Variable cost/t surprised by falling 10% q-o-q and we expect it to stay in a comfort zone going ahead.

ACC, yet again, kicked off the sector’s result season on a stellar note. Despite muted demand, the company’s Q3CY19 Ebitda surged 26% y-o-y (38% ahead of our and 10% of consensus estimates) with positive surprises in revenue and cost. Volume and realisation dip of 1.7% y-o-y and 5.5% q-o-q was better than our 3% and 7% fall expectation, respectively. Variable cost/t (ex-freight/t) fell 10% q-o-q owing to low fuel costs. Fixed cost was also under control—down 2% y-o-y.

While cement demand has been muted over the past two quarters, we are hopeful of a recovery going ahead. Calibrating 9mCY19 performance and the estimated recovery, we see limited risk to our CY19e and CY20e earnings. We also introduce CY21e earnings with modest 4% y-o-y Ebitda growth, implying flat Ebitda/t. Rolling over valuation to Q1CY21e we retain Buy with an unchanged target price of Rs 1,846, 12x EV/Ebitda.

Q3CY19: Key highlights
> Amidst muted industry demand and no capacity addition benefits, volume at 6.44mt declined 1.7% y-o-y. 9mCY19 volumes rose mere 1% y-o-y and we estimate similar ~1% growth for CY19 and ~3% for each CY20 and CY21.

> Though realisation dipped 5.5% q-o-q, y-o-y it rose ~3.5%. We estimate modest price recovery in Q4CY19. While blended realisation for CY19 is expected to rise ~5% y-o-y, we pencil in ~2.5% hike each for CY20 and CY21.

> Fixed costs were under control, falling 2% y-o-y. Variable cost/t surprised by falling 10% q-o-q and we expect it to stay in a comfort zone going ahead.

> Ebitda/t at Rs 864 jumped 28% y-o-y and for 9mCY19 stood at Rs 884. Our estimates for CY19/CY20/CY21 are Rs 880/ 872/875.
Outlook: Sector tailwinds intact

Calibrating 9mCY19 performance and the estimated recovery, we see limited risk to our CY19e and CY20e earnings. We maintain that ACC will be a beneficiary of our positive sector view. Hence, we maintain ‘BUY/SP’. At CMP, ACC trades at 9.7x CY20e EV/ Ebitda.

 

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