Emkay Global Financial has given Buy recommendation for ACC with a target price of Rs. 2625 in its research report issued on Oct 17, 2022

Emkay Global Financial’s research report on ACC

Q3CY22 EBITDA sharply declined YoY and QoQ to Rs164mn vs our estimate of Rs3bn (Consensus: Rs2.8bn), owing to significantly higher-than-expected increase in cost/ton. Accordingly, blended EBITDA/ton declined to a multi-year low of only Rs24 (Emkay est.: Rs425). The Ametha integrated project (2.7mt clinker and 1mt cement grinding) is delayed by a quarter and is expected to be commissioned by Mar-23. The ongoing expansion project (including a 2.2mt grinding unit at Salai Banwa) will increase ACC’s grinding capacity to 39mt (from 36mt currently) by mid-CY23. Factoring-in the Q3CY22 miss, the delay in Ametha project commissioning, and a more gradual realization of Group-synergy benefits [Rs100/ton over 3-years], we cut our EBITDA estimates for CY22 by 30% and for CY23-24 by 12-15%.

Outlook

The stock provides favorable risk reward, with peaking of cost, discontinuation of royalty payments to Holcim, likely cost synergies with the promoter group and nearly 15% correction in the last one month (vs broader indices largely flat). Accordingly, we upgrade the stock to BUY (earlier Hold) and revise our Sep-23E TP to Rs2,625 (earlier Rs2,970). Our DCF-based TP implies a 1-year forward EV/EBITDA of 12x (unchanged). Downward revision in ACC’s stock price may lead to ~3% reduction in Ambuja’s TP.

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