Buy ACC; target of Rs 1650: ICICI Direct
ICICI Direct’s research report on ACC
ACC reported a mixed set of Q4CY18 numbers with revenues in line with estimates. However, it was a miss at the EBITDA level • Revenues for Q3 grew 10.9% YoY to Rs 3788.6 crore (in line with I-direct estimate: Rs 3,750.4 crore) led by 8.4% YoY growth in volumes to 7.5 MT (vs. I-direct estimate: 7.4 MT), 2.3% YoY increase in blended realisation/tonne to Rs 5,051/t (vs. I-direct estimate: Rs 5,068/t) • EBITDA margins, however, missed our estimates registering a decline of 66 bps to 10.1% (vs. I-direct estimate of 13.8%) mainly led by a 32.3% increase in raw material costs to Rs 714 crore. EBITDA/t reduced 4% YoY to Rs 508/t (vs. I-direct estimate of Rs 699/t) while on an absolute basis, EBITDA was at Rs 381 crore, up 4.1% YoY • Net profit increased 256% YoY to Rs 732.3 crore on account of a reversal of provision of Rs 501 crore, which the company had created against disputed tax liability for excise duty incentives. Adjusting for reversal, ACC’s Q4CY18 PAT was at ~Rs 229 crore, which is again below I-direct estimate of Rs 327.5 crore.
After reporting subdued volume growth (1.8% CAGR in CY13-17), ACC reported double digit volume growth in CY17 (up 14.0%) and CY18 (up 8.3%), respectively, led by capacity expansion. Going forward, with higher infra spending in south, revival in rural economy and pre-election spending, we expect demand to improve (it has remained a laggard till now). On the margin front, we expect margins to improve QoQ led by price hikes and stabilisation in operating costs especially freight & power costs. The master supply agreement with Ambuja would also help lower its lead distance, maximise utilisation of assets. This will result in synergy benefits of ~3-5% of profit before tax. The stock is available at attractive valuations of 9.4x CY20E EV/EBITDA and EV/t of $ 101/t post recent corrections. Hence, maintain our BUY rating with revised target price of Rs 1,650 (i.e. valuing the stock at CY19E EV/tonne of $ 125/tonne, 12x CY20E EV/EBITDA).
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