YES Securities has given Neutral recommendation for ACC with a target price of Rs. 2364 in its research report issued on Oct 17, 2022
YES Securities research report on ACC
ACC Ltd (ACC) reported weak operational performance as EBITDA margin declined to 0.4% v/s YSEC est. of 8.6% due to inflating total cost/te by +25% y/y and +8% q/q in Q3CY22. On account of ongoing monsoon, ACC volume & NSR corrected by 9.4% & 1.5% sequentially, while increased by 4.5% & 1.8% y/y owing to the newly added capacities resulted in revenue growth of 6% y/y to Rs39.9bn (v/s YSEC est. Rs41.8) in Q3CY22. ACC reported multi-quarter low EBITDA of Rs164mn declined by 98% y/y and 96% q/q translates in EBITDA/te of Rs23 in Q3CY22. The 9MCY22 operating cost/te increased by +20% y/y mainly due to unprecedented surge in power cost/te by +46% y/y to Rs1597 which declined the EBITDA/te by 58% y/y to Rs469. However, we expect full year EBITDA/te for CY22E to stand at Rs522 (earlier Rs678), owing to normalizing cost and higher NSR that will revive operating profits for Q4CY22E. ACC reported a net loss of Rs873mn declined by 1.2x y/y and 1.4x q/q in Q3CY22. Given the Q3CY22 operational performance, we have trimmed our EBITDA & PAT estimates for CY22E by 26/30% y/y respectively. However, we didn’t change our earnings estimates for CY23E envisaging 1) Cost normalization 2) Improving operating efficiency 3) Incremental volumes. ACC is scaling up its green-power share (WHRS/Solar/ Wind capacity to 75/82/19MW) and alternative fuel usage coupled with debottlenecking of various plants that will aid ACC to improve EBITDA/te to Rs996 for CY23E. ACC recently commissioned Tikaria 1.6 MTPA GU, while other ongoing expansion of Ametha 2.7MTPA Clinker & 1MTPA Cement capacity and Salai Banwa 2.2MTPA are on track which would take total capacity to ~39MTPA by H1CY23E.
Outlook
Therefore, the recently added & upcoming capacity in the central market will improve the volume growth by +12% for CY23E. We recommend NEUTRAL rating with TP of Rs2,364 at 10x EV/EBITDA on CY23E.