ACC’s Q4 EBIDTA Beats Forecast; Posts 47% Growth

Cement major ACC has posted stellar results for the fourth quarter ended on March 31, 2021, for 2020-21. The company has posted the highest growth of 47 per cent in its earnings before depreciation, interest, taxation, and amortisation (EBIDTA) margin in the last 36 quarters beating the street consensus estimate of 20 per cent by a wide margin. 

Going ahead, based on the recent performance, the street is optimistic about the company’s performance in the near to medium term, as various brokerages have hiked the company’s share Target Price (TP) over the next year in the range of Rs 2012-2,250 from the Current Market Price (CMP) of Rs 1,877. They have also recommended investors add the stock to their portfolio. ACC counter clocked trading volume of 58.73 lakh shares on Tuesday. 

Kunal Shah, Analyst - Institutional Equities, YES Securities said, “ACC delivered a strong set of numbers for the fourth quarter of 2020-21with marginal outperformance on volumes (+21.5 per cent y/y and +2.2 per cent above estimates) and massive outperformance on EBITDA level (+47 per cent y/y) which was 22 per cent above our estimates and 20 per cent above consensus estimates. Better than expected realisations due to higher share of premium products and lower clinker cost led to beat on operating performance”.

Motilal Oswal Financial Services Ltd (MOFSL) in its research note said, “ACC's result surprised positively on strong cost control. EBITDA grew 47 per cent YoY, on 3 per cent YoY decline in total cost per tonne driving EBITDA per tonne to Rs 1,078”.

Prabhudas Lilladher, the country’s one of the oldest brokerages in its research note said, “ACC’s EBITDA margins for the fourth quarter are at the highest levels in the last 35 quarters (almost nine years), led by higher realisations and lower costs. This has resulted in increased earnings estimates for calendar year 2021 by 8 per cent and calender year 2022 by 4 per cent on the back of higher margins.”

Going ahead, on the back of sharp surge in energy (power and fuel) prices (spot prices at Rs 1.4/kcal on blended basis vs consumption cost of Rs 1.1-1.2/kcal during the quarter), Shah said, “we expect P&F costs to rise by Rs 170/tonne sequentially from the second quarter of the calendar year 2021 onwards. However, strong pricing scenario and operating leverage would offset the surge in costs to some extent translating into range-bound profitability for the calendar year 2021 vis-à-vis calendar year 2020”.

Based on the operating leverage mentioned above, Shah said, “We upgrade our volume estimates by 4.8 per cent/2.4 per cent and EBITDA estimates by 12.1 per cent/11.2 per cent for the calendar year 2021/ calendar year 2022E respectively”.

MOFSL said ACC's Central India expansion is expected to get commissioned in the second half of the calendar year 2022, which we estimate would drive an 11 per cent compounded annual growth rate (CAGR) in volumes over calendar year 2020-23. “We expect costs to remain in check, supported by a master supply agreement (MSA) with Ambuja as well as supply chain efficiencies. “We value ACC at 10x Mar'23 EV/EBITDA (20 per cent discount to the past five-year average of 12.5x) to arrive at Target Price of Rs 2,205,” it said.

ACC delivered a strong performance on the cost front over the last couple of years despite constrained capacity and a steep surge in coal/diesel prices. PL’s research note said, “We see scope for further cost reduction in front of power and fuel through an increase in the share of waste heat recovery (WHR), solar power and modernisation in kilns, fixed costs and increase in the share of volumes. we maintain Buy with revised TP of Rs2,150 (earlier Rs2,012), EV/EBITDA of 13.0x calendar year 2022” the PL note said. 

Shah however said the company’s share price may face roadblocks if further lockdowns across states get extended due to the second wave of covid-19. “It would hamper volume growth and timelines of capex commissioning”, he cautioned.

The cement major’s expansion plans are also on track. It is a greenfield plant at Ametha, Madhya Pradesh (MP) with a capacity of 6.2 million Tonnes per annum including a split grinding unit that is expected to be commissioned in the second quarter of calendar year 2022. The commissioning of WHRS at Jamul (Chhattisgarh) and Kymore (MP) is on track for commissioning in a year, the PL note said.