ACC's Q4CY17 results (Neutral) - Strong volume growth

Q4CY17 result highlights

• PAT +38% yoy to Rs1.7bn:on higher volumes, albeit missed our estimates on lower than estimated realisations.
• Robust volume growth at 27% yoy to 6.92mt: due to a low base (demonetisation impact) and ramp up of new capacities in East. Growth is being led by demand in infra projects such as roads & metro. The growth is ahead of industry growth implying mkt share gain.
• Realizations muted: Adj. for Rs3.2bn RMC revenues (+22% yoy), realisations were up 2.8% yoy to Rs4477/t due to a low base (decline in prices post demonetization). However, on qoq basis, realizations fell due to weak cement prices across mkts, which continue to remain subdued. Hence, revenues +30% yoy to Rs34.2bn.
• Positive operating leverage aid cost control (+0.8% yoy): led by decline in employee & other expenses. However, freight cost +11% yoy due to change in commercial terms (Rs174/t impact) & higher diesel prices (~10% yoy), partly offset by route rationalisation. P&F cost/t +5% yoy due to higher petcoke prices (+27% yoy in 4Q17) & coal costs (limited linkage availability). RM cost +21% yoy due to higher slag prices & flyash unavailability (sourcing from longer leads). We note P&F costs declined qoq led by lower consumption norms on higher volumes.
• Blended EBITDA/t at Rs479 (+17%yoy; -Rs113 qoq): led by higher realizations. Hence, EBITDA increased 49% yoy to Rs3.3bn. 
• CY17 adj. PAT +28% yoy to Rs8.8bn: as revenues +20% (+14% vols; +6% realn), while EBITDA +21.5% yoy to Rs15.2bn with higher costs (+6% yoy; higher freight and power costs).

Key positives: Strong volumes, cost control

Key negatives: Weak realizations

Impact on financials: CY18 EPS cut by 7% to Rs64; FY20 EPS at Rs87

Valuations & view

ACC’s performance has improved over the past few quarters led by the recent commissioning of Jamul capacity (2.45mtpa cement capacity) and focus on group to grow volumes (likely market share gains in CY17). Accordingly, we estimate 36% earnings CAGR over CY17-19E, led by improving industry dynamics, volume ramp up as also likely synergies from recent Holcim restructuring. Further, any news on the merger between Ambuja and ACC would be a positive trigger for the stock. However, we believe valuations of 14.9x/11.4x CY18E/CY19E EV/EBITDA and US$131 on CY19E EV/tonne, adequately capture the earnings uptick. Maintain Neutral.