ACC Share price Today: EACC reported EBITDA margin of 13.8%, EBITDA/t of Rs 742/t, lower than estimate of 16.4%, Rs 871/t, respectively, although sales volumes (up 18.8% QoQ, flat YoY) broadly remained in line with estimates. Strong rural demand along with revival of infrastructure projects supported sales volumes. RMC volumes, however, fell 21.5% YoY to 0.73 Mio (up 58.6% QoQ). While operating performance of ACC appears weak mainly due to lower margins, this is due to additional charge of Rs 129 cr in other expenses (pertaining to incentives receivable from government) that led to sharp contraction in margins.

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Adjusting for the same, ACC EBITDA margins and EBITDA/t would have been 16.9% and Rs 909/t. Further, impairment loss of Rs 176 crore led to 14.6% QoQ dip in profits at PBT level to Rs 461 cr, which otherwise would have remained on expected lines. ACC’s expansion plans are on track, which will be mainly funded through internal accruals. Of the total 6.2 MT new proposed capacity additions, ACC has commissioned a new 1.4 MT grinding unit at Sindri, Jharkhand during January 2021, which will help strengthen its positioning in the eastern region. ACC board has recommended final dividend of Rs 14/share.

ACC’s New capacities to help gain lost ground from CY22E onwards:

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In the past five years, ACC has lost market share to other large players with no major new capacities coming in place in this period either via greenfield or M&A route. While industry capacity grew at CAGR of 7%, the company managed to increase its capacity from 30.5 MT to 33 MT at 2% CAGR. As a result, ACC’s production share declined from 14% in FY14 to 11% in FY20. To address this growth concern, the company is adding 6.2 MT new cement capacities with capex of Rs 3000 cr. This would be mainly funded through internal accruals. However, the new capacity would likely come on stream only by the end of H122E for ACC. ICICI Securities thus model volume CAGR of 11.7% in CY20-22E and expect revenues to grow at 12.8% CAGR in the same period for ACC.

Valuation & Outlook of ACC:

Structural issues with respect to CoP need to be addressed for sustenance of healthy margins in the long run. On the positive side, strong b/s and improved cash flow remain key positives for ACC. Further, new capacities would bring ACC back on the growth track with expected revenue CAGR of 12.8% during CY20-22E. Hence, ICICI Direct retains BUY rating with a revised Target price of Rs 2250/share (valuing at 11.5x CY22E EV/EBITDA implying EV/t of $135) (earlier target price Rs 1950/share).