ACC share price: CLSA, Citi to BofA - Here is what brokerage reports are saying after results declaration

CLSA thinks this was driven by better realization, while volumes were largely inline. Citi says that EBITDA was ahead of their 5.2 bn estimate because of better cement realizations. Q3 EBITDA grew 18% YoY and was ahead of expectations on account of cost containment measures and lower increase in fuel expenses. Emkay highlights that higher than estimated realization (up 3.5% yoy vs. estimate of 1.4% growth) and EBITDA stood at Rs 6.7 bn vs. estimated Rs 6.3 bn and EBITDA/ton came in at Rs 1,073 vs. estimated Rs 958.. Improvement in cement demand after the easing of lockdowns surprised many analysts positively and they have recently upgraded earnings estimates for the entire cement sector.

1) Citi remains constructive on ACC with a new price target of Rs 2075 from Rs 1950.
2) CLSA reiterates buy call and raises target price to Rs 1920 from Rs 1730  
3) BofA Securities maintains an underperform rating with a price target of Rs 1400.
4) Emkay maintains buy rating with target price of Rs 1774
5) Phillip Capital continues to maintain Neutral view on the stock with a price target of Rs 1,420.
6) Prabhudas Lilladher maintains Buy rating on ACC with target price of Rs 1805 from earlier target of Rs 1565.

Citi remains constructive on ACC with a new price target of Rs 2075. ACC remains their top cement pick after Ultratech cement. Q3 EBITDA rose 21% YoY on higher realizations, lower costs; offset in part by RMC weakness. EBITA was ahead of the estimate on better cement realizations, lower cement costs and higher RMC sales.

Realization was flattish in the South while 3-4% down in other regions. QoQ volume growth was 35% pn better rural and retail sales. There is a gradual pickup in demand from the commercial and industrial segment. Cement Cost per tonne improved despite higher petcoke and diesel prices. ACC used low cost petcoke inventory during Q3. Warehouse space optimization, network efficiencies and lower lead distance helped cost despite higher diesel prices. Stricter cost control in discretionary fixed costs and negotiations / rationalization on various cost fronts benefitted. ACC’s focus continues to remain on ‘Health, Cost and Cash’.

Citi expects a cement price hike post the festive season in Nov 20 as the ACC’s is more focussed on profitability / Cash flows. Also, cost increases due to petcoke, diesel and a return of discretionary spending.

CLSA reiterates buy call and raises target price to Rs 1920 from Rs 1730. Strong results were driven by better realizations. ACC’s third consecutive quarter of better cost control implies the benefits of cost control steps taken are likely sustainable, driving efficiencies. Demand weakness in West India was offset by strong growth in East and Central.

BofA Securities maintains an underperform rating with a price target of Rs 1400. Q3 EBITDA grew 18% YoY and was ahead of expectations on account of cost containment measures and lower increase in fuel expenses.

Key highlights include:

1)     Volume grew 1% YoY, likely implying a small dip in market share.
2)     Price realization for the grey cement was down 2% QoQ suggesting a stronger than estimated trend in a seasonally weak quarter.
3)     Progress in cost containment initiatives, most visible in the drop in fixed assets.

ACC’s exposure to South and a higher cost structure could weigh against its growth outlook while leveraging a cash rich balance sheet by way of capacity expansion and optimizing the cost structure through MSA implementation with Ambuja are key opportunities.

Volume growth as expected, exposure to south is a drag:

Volume uptick has been driven by rural and retail sales while demand in urban areas is still soft. ACC’s high exposure to the South is likely a key reason for volume growth to be weaker in the industry. North and East have done well this quarter while soft has been soft. Capacity addition remains the key towards the key towards arresting the dip in market share.  
Increase in profitability:

Power/fuel expenses per ton declined by 20% (YoY) due to better fuel mix and freight costs per ton decreased by 8%, driven by higher share of direct deliveries and operating efficiencies. Employee expenses and other expenses remain down on a YoY basis despite volume recovery suggesting progress in cost containment initiatives.  

Emkay maintains buy rating with target price of Rs 1774. Emkay believes cost savings initiatives are yielding results for ACC.   

Lower operational expense and higher realization help profits:

ACC benefitted from high cement prices and low operational expense in Q3. Realization was down by mere 1.1% qoq (but up 3.5% yoy) led by an increase in sales of premium products (up 5pp qoq) and lower sales in the East region, where the price decline was sharper. Sales volume was up 0.8% yoy with capacity utilization of 77%. RMC (ready-mix concrete) sales volume was down 43% yoy. Variable costs fell by Rs35/ton yoy (flat qoq) on lower energy costs and operating efficiencies. Employee cost was down 11.1% yoy/13.9% qoq due to the reduction in contractual employees. Freight expense was down 10.2% yoy led by higher direct dispatches. Other expense/ton fell 20% yoy, driven by cost-saving initiatives (rent, ad spends, office and travel expenses etc.).

Cost savings in progress:

ACC is working on cost saving strategies and started an initiative “Project Parvat”, with an aim to reduce fixed costs by Rs 200/ton in CY 20-21. The savings were to be achieved through improving efficiencies in procurement and supply chain and lowering distribution costs.

Phillip Capital continues to maintain Neutral view on the stock with a price target of Rs 1,420.

Top takeaways from Q3 FY21 of ACC:

ACC has reported a largely in line set of operating numbers to our expectations. This is ACC’s third quarter in a row of in-line set of numbers vs. our expectations. Blended realisations and operational expense/tonne was 1% better than expected and volumes exactly in-line. EBITDA was 1% better vs. us / 4% better vs. consensus. EBITDA/tonne at Rs 927 was 2% better to our estimate. If this sustainability sticks-on (on a relative basis to peers) for next 2-3 quarters, Phillip Capital does see a structural re-rating potential for ACC Ltd. For now, given the consistent and an in-line set of performance of ACC for 3 quarters in a row, they see upgrade potential to earnings estimates driven by sustained efficiencies. However, multiple re-rating will remain a function of longer term sustainability and for which Phillip Capital will watch out over the next 2-3 quarters.

Prabhudas Lilladher maintains Buy rating on ACC with target price of Rs 1805 from earlier target of Rs 1565. ACC posted a strong beat on Q3 FY21 earnings, led by better than expected realisations. Realisations fell by Rs100/t QoQ against our expectation of Rs230/t fall. Higher realisations drove 21% YoY growth in EBITDA (including other operating income) at Rs 6.7 bn, above our/consensus estimates by 5%/18%.

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Quick Pointers:

1)      Beat in earnings led by lower than expected fall in realisations
2)      Fall in costs sustainable in nature

This is the third consecutive quarter of strong performance by ACC, backed by sustained cost reduction (down 4% YoY in 9M FY21) and better realisations. However, inconsistency has been the issue with ACC. Though seeing the meaningful reduction in energy consumption, rationalisation of fixed costs and increased supplies under Master Supply Agreement (MSA) with Ambuja, Prabhudas Lilladher expects EBITDA margins to sustain at Rs 850/t (without other operating income), highest levels since CY10. They upgrade their EBITDA estimates for CY21/CY22 by 10%/8% to factor in better realisations and lower costs. Ample scope for further reduction in costs (increase in share of Waste heat recovery and reduction in fixed costs) and ongoing capacity expansion of 5mtpa in the central region continue to drive our positive outlook on the stock. 

(Authored by Rahul Kamdar)