Brokerages Stay Bullish On ACC; Cheer Cost Cuts, Capacity Addition Plans
A limestone and clay mix sits in a pile inside a cement plant. (Photographer: Gianluca Colla/Bloomberg)

Brokerages Stay Bullish On ACC; Cheer Cost Cuts, Capacity Addition Plans

Analysts cheered ACC Ltd.’s efforts to cut costs and plans to expand capacity, as most of them hiked price targets on the cement maker after the first quarter.

The LafargeHolcim subsidiary, which follows a January-December fiscal, posted a net profit of Rs 563 crore in the quarter ended March, a 74% jump over the year earlier, according to an exchange filing. Its revenue rose 23% to Rs 4,213 crore.

  • The company sold 8 million tonnes of cement in the reported quarter, a 21.6% year-on-year rise in volumes.

  • ACC’s capacity utilisation stood at 90% during the three months ended March.

  • It has 17 cement plants with an installed capacity of 34.45 million tonnes per annum.

  • ACC also commissioned a new grinding unit at Sindri Industrial Township in Jharkhand’s Dhanbad, adding a capacity of 1.4 million tonnes per annum.

The cement maker, in its statement, said it maintains a cautious yet positive outlook for overall cement demand in the coming months, with the government’s increased spending and its strong focus on infrastructure development.

Analysts also maintained their bullish investment recommendations for ACC, while some see its merger with Ambuja Cements Ltd. as a positive. Of the 44 analysts tracking the company, 31 have a ‘buy’ rating, six suggest a ‘hold’ and seven recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 10.6%.

Shares of ACC, however, erased gains of as much as 5.6% to trade with losses.

Here’s what analysts have to say about ACC’s March-quarter results...

Jefferies

  • Maintains ‘buy’ rating and hikes target price to Rs 2,300 from Rs 2,200 apiece.

  • Beat earnings estimate despite a marginal miss on cement realisation but more than made up by cost savings along with slightly higher volumes.

  • Estimates realisations to grow at a 4% CAGR over CY20-23, volumes to grow at 11% CAGR and unit costs to grow at 2% CAGR.

  • Strong start to the year drives an 8-9% EPS upgrade over CY21-23.

  • Revised estimates may have downside risk in case there is a significant disruption to construction activity.

  • ACC remains in top pick — medium-term investment case remains contingent on capacity announcement.

Nirmal Bang

  • Maintains ‘accumulate’ rating with a target price of Rs 1,848 apiece.

  • This marks sixth consecutive quarter when ACC has reported a year-on-year decline in total operating cost/mt.

  • Higher costs of slag, fly ash, diesel and fuel year-on-year were a bit of a concern.

  • Upside risks are the merger of ACC with Ambuja Cements due to the recent amendments in the MMDR Act.

  • Performance is not sustainable due to cost inflation (which may start affecting upcoming quarters) and lower demand due to lockdowns in various parts of the country.

CLSA

  • Maintains ‘underperform’ rating but raises target price to Rs 2,080 from Rs 2,050 apiece.

  • With capacity utilisation at 90%, expect ACC to grow slower than the industry till the 2022 Ametha expansion is ramped up.

  • Its two-year volume CAGR of 3% was lower than the industry (+7%).

  • Profitability beat driven by cost efficiency and sustainability key.

  • Expects ACC to struggle to maintain market share in the current cycle of strong demand growth.

  • Raises 2021-23 Ebitda estimates by 1-4% mainly on lower costs.

Citi Research

  • Maintains ‘buy’ rating, hikes target price to Rs 2,600 from Rs 2,300.

  • Expects industry utilisation to trend up and price hikes to offset cost.

  • ACC’s multiples could expand — relative valuation comfort, potential merger (removal of transfer fees on mining leases) and growth (growth has been muted recently as ACC has been operating at 90% utilisation).

  • Transfer of limestone leases without an additional transfer fee should help streamline the M&A process; and could be positive for ACC/Ambuja’s potential merger.

Motilal Oswal

  • Maintains ‘buy’ rating with a target price of Rs 2,205, implying a potential upside of 17%.

  • Result surprised positively on strong cost control.

  • ACC’s 35–60% valuation discount to peers Shree Cement Ltd., UltraTech Cement Ltd., and Ramco Cement Ltd. is excessive as it has arrested its market share losses since CY17, its cost is expected to stay in check, aided by savings in logistic costs, and due to its planned expansions.

  • To mitigate the impact of rising diesel costs, ACC continued to focus on direct dispatches, network optimisation, and procurement savings.

Dolat Analysis & Research

  • Maintains ‘buy’ rating with an upward revised target price of Rs 2,371.

  • Capacity addition at Ametha plant, Tikaria plant, Sindhri plant and Sonebhadra plant augurs well.

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