ACC Share price today: Maintain BUY rating with unchanged target price of Rs 2050/share

ACC Share price today: Management remains optimistic on demand growth led by increased government thrust on infrastructure and strong rural housing demand and expects industry to post >10% YoY growth. ACC Share price today is Rs 1762, down Rs 26 or 1.5%.

ACC’s 1.4mnte Sindri grinding unit got commissioned in Jan '21. 2.7mnte clinker unit at Ametha, MP along with 1mnte grinding unit and 1.6mnte grinding unit at Tikaria is likely to commission by Jun’22, and balance 2.2mnte Shonebhadra, UP grinding unit may commission by early’24. Besides, commissioning of 4.5mnte Marwa Mundra expansion of Ambuja Cement in CY21 may also provide incremental volumes to ACC. Overall, ACC targets to maintain its market share. Given high utilisation vs peers, ACC intends to focus on high contribution markets and increase share of value-added / premium products

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Key takeaways from ACC’s CY20 annual report analysis include:

a)      Management remains optimistic on CY21 demand growth and expects industry to post >10% YoY growth
b)      cost efficiency programme ‘Parvat’ yielded savings of Rs110/te in CY20 – confident of achieving targeted Rs200/te
c)       2.6mnte Ametha expansion may commission by Jun’22
d)      company achieved increased synergies of 5% of CY20 PBT via MSA with ACEM
e)      EBITDA-to-OCF conversion stood strong at 100%; net cash increased by Rs 12.5 bn to Rs 59 bn.

ACC posted 15% EBITDA CAGR over CY17-20 and likely to post similar CAGR over CY20-22E (lower volume growth may be offset by better cost efficiencies). ACC’s improving profitability / return ratios and industry tailwinds over next few years. ICICI Securities maintains BUY rating with unchanged target price of Rs 2050/share (9xFY23E EV/E).

Achieved cost savings of Rs110/te or > Rs2.5bn in CY20 via ‘Parvat’:

Clinker factor was further reduced by 1.37% and the share of blended cement increased by 100bps YoY to 90%. ‘Parvat’ also led to higher direct despatches, warehousing cost rationalisation, source mix optimisation, renegotiating various contracts etc. Covid’19 induced cost optimisation led to nearly 1/3rd lower consumption of stores and spare parts to Rs 2.3 bn vs Rs 3.3 bn in CY19, while rates and taxes were reduced to Rs 770 mn vs Rs 1.4 bn in CY19 and ad spends halved from Rs 1.1 bn in CY19.

While some of these costs will normalise with volume recovery, ACC remains confident to achieve targeted cost savings of Rs200/te via optimising logistic costs, manufacturing excellence and fixed cost rationalisation. CY20 employee costs included one-time cost of Rs 210 mn towards employee separation costs

ACC Key risks:

Lower demand / pricing