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ACC's Q3CY19 results (Outperformer) - Decent performance in a toughenvironment

Q3CY19 result highlights

• Adj. PAT +43% yoy to Rs3bn:led by higher realisations partially offset by muted volumes.
• Volume growth slows down (-1.7%   yoy): to 6.44m tons led by weak demand across regions on account of execution slowdown in infrastructure projects and heavy monsoons.
• Realisation improves 4% yoy (-5.3% qoq): adj. for Rs3.4bn RMC revenues (+10% yoy). The yoy increase in realisation was led by substantial price hikes in 1HCY19 and continued growth in premium products (+8% yoy volume growth). However, the prices have corrected from the peak levels of 2QCY19 particularly in South (Rs30-40/bag; ~15% of overall volumes) while in North and West prices have seen lower declines. Hence, revenues grew 3% yoy to Rs34.6bn.
• Costs higher (+1.2% yoy): Overall, costs were impacted on higher production vs sales as also adverse consumption norms (typical in lean period). Hence, P&F cost/t were higher by 9.2% yoy/7.4% qoq. Freight cost increased by 3.6% yoy/2.2% qoq due to higher handling & warehouse costs. This was partially offset by lower RM costs (supply chain efficiency, source and product mix optimisation) and other expenses (lower marketing and packaging costs).
• Blended EBITDA/t at Rs864 (+26.8%yoy): led by improvement in realisations, partially offset by muted volumes and higher costs. Hence EBITDA grew 24.7% yoy to Rs5.56bn. Reported PAT at Rs3bn +45.9% yoy due to VRS cost of Rs36mn in 3QCY18.

Impact on financials: No change in CY19E/CY20E EPS of Rs72/83.

Valuations & view

ACC saw a decent performance in the quarter in line with industry trends of muted volumes and qoq decline in realisations. We expect demand to gradually improve led by government spend on infrastructure and drive resultant pricing power over the medium term. Concurrently, cost pressures are likely to subside on back of lower petcoke prices as also focus on fixed costs (employee and fixed costs contained at 4% CAGR over CY16-18), improved consumption norms, blending (higher use of slag), etc. Accordingly, we estimate 20% earnings CAGR over CY18-20E. We believe valuations of 8.4x CY20E EV/EBITDA and US$97 on EV/tonne are attractive with capacity expansion on track (5.9mtpa in CY21E). Maintain our Outperformer rating on the stock.