ACC Share price: ICICI Securities pegs target price at Rs 2250

ICICI Securities says that ACC’s result performance was ahead of estimates led by better sales volumes and higher margins. Sales volume increased 21.5% YoY to 7.97 MT (up 3.4% QoQ) while realisations increased 0.9% YoY (flat QoQ) to Rs 5,385/t leading to revenue growth of 22.6% YoY to Rs 4292 crore. Strong demand along with lower base of last year and partial benefit of new capacity (1.4 MT) led to healthy sales volume growth. Reported EBITDA margin came in at 20% (up 330 bps YoY, 625 bps QoQ), higher than ICICI Sec estimate of 16.5% due to volume led operating leverage and lower other costs.

ACC commissioned a new grinding unit (1.4 MT) in January 2021 at Sindri, Jharkhand. Further greenfield expansion in Ametha and associated grinding units are on track. ICICI Securities has retained a BUY rating and pegged the target price at Rs 2250. ACC share price today is Rs 1805, down Rs 21 or 1.15%. ACC share price moved down from Rs 1855 to Rs 1805 in the last 1 week, says ICICI Securities

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Cost rationalisation to bring efficiency; Balance Sheet to remain firm:

ICICI Securities says that ACC, despite being the oldest cement company, remains susceptible to volatility in margins due to its high cost of production (CoP). To bring down costs, the company undertook various cost saving initiatives across its plant under “Parvat Programme''. This move helped ACC achieve cost saving of | 110/tonne resulting in cost savings of over Rs 250 crore in CY20. Still, the company closed CY20 with CoP of Rs 4472/t, i.e. 15% higher than industry average CoP. ACC aims to bring down the cost by Rs 200/t via optimising logistic costs, manufacturing excellence and fixed cost rationalisation. In terms of Balance Sheet, it is among the strongest in the industry with positive free cash flow generation and a debt free position.

Valuation & Outlook of ACC:

ICICI Securities said that while structural issues need to be addressed for sustenance of healthy margins, strong balance sheet and improved cash flow remain key positives. Further, new capacities would bring growth back on track. The Covid induced lockdown may impact sales in the near-term. However, strong underlying demand should help the company recover lost volumes as and when normalcy resumes.