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ACC's Q4CY19 results (Outperformer) - Volume growth in a tough environment

Q4CY19 result highlights

• Adj. PAT +6.7% yoy to Rs2.7bn:led by higher volumes partially offset by muted realisations.
• Volume growth picked up (+4% yoy): to 7.76m tons led by uptick in demand in East (~20%+ of volumes), while demand in South was weak, particularly in AP (sustained delay in projects on lack of funds).
• Realisation growth was muted at 0.5% yoy (-Rs245/t qoq): adj. for Rs3.89bn RMC revenues (+8.2% yoy). The increase in realisation was led by substantial price hikes in 1HCY19. However, prices declined in 2HCY19, particularly in East and South. Hence, revenues grew 4.8% yoy to Rs39.7bn. Our channel checks suggest that prices have started inching up in Jan-20 across regions by Rs15-20/bag. However, price hikes in South are not able to hold on due to weak demand.
• Costs flat (+0.1% yoy): at Rs4536/t. During the quarter, the increase in change in stock (higher sales vs production; 3Q19 had higher production) has led to sharp drop across cost items. Lower P&F cost/t (-7.2% yoy/-22% qoq; benefit of lower petcoke prices) and freight cost (-7.8% yoy/-14% qoq; operational efficiency) were offset by higher RM costs (+22.9% yoy; purchase of clinker). Employee cost and other expenses were lower on positive operating leverage.
• Blended EBITDA/t at Rs697 (+2%yoy): on muted realisations. Hence, EBITDA grew 6% yoy to Rs5.41bn.
• CY19 performance strong: adj. PAT +26% yoy to Rs13.6bn as revenues +6% (+1.8% vols; +3% realn). Costs were up 4.4% yoy (higher P&F and RM costs). RMC EBITDA +14% yoy to Rs1.53bn. Blended EBITDA/t +12% yoy to Rs834/t, driving 14% yoy in EBITDA to Rs24.1bn. Reported PAT fell 10% yoy to Rs13.6bn (tax write back in CY18).

Impact on financials: Cut CY20E EPS by 3% to Rs80. CY21E EPS at Rs96

Valuations & view

Despite a challenging quarter, ACC saw decent volume growth while driving cost efficiencies (benefits of lower fuel prices). Cost pressures are likely to subside on back of lower petcoke prices as also focus on fixed costs (other costs fell 2% in CY19), improved consumption norms, blending (higher use of slag), etc. On the other hand, 5.9mtpa capacity expansion (Central & East) is on track for commissioning in CY21E. Accordingly, we estimate 18% earnings CAGR over CY19-21E. We believe valuations of 8x CY20E EV/EBITDA and US$94 on EV/tonne are attractive. Maintain our Outperformer rating on the stock.