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MOSL : ACC: Washout quarter; cost-saving strategies awaited

.  ACC: Washout quarter; cost-saving strategies awaited

(ACC IN, Mkt Cap USD5.2b, CMP INR2270, TP INR2430, 7% Upside, Neutral)

Margin at a historical low; blended EBITDA/t at INR23

• ACC reported a dismal set of 3QFY23 earnings as higher energy costs impacted operating metrics adversely. EBITDA stood at a mere INR154m (est. INR2b), though revenue was 2% above our estimate. EBITDA/t of INR23 and OPM of 0.4% was at historically low levels. Adjusted loss stood at INR748m v/s our estimate of a profit of INR577m.
• The decline in coal/petcoke prices and discontinuation of royalty payments to Holcim (1% of sales; ~INR53/t) should aid the margin recovery in 2HFY23. We factor in an EBITDA/t of ~INR620 between Oct’22 and Mar’23.
• As the company has changed its financial year-end to March from December, we adjust our earnings for the same. On a like-to-like basis, our EBITDA estimate for CY22/CY23 is being downgraded by 17%/10% and EPS estimate is being cut by 23%/13%.
• We await clarity from the new management on its capex and cost-saving plans to turn constructive on the stock as it has about its ambitious growth plans for the next few years. We maintain our Neutral rating with a TP of INR2,430 (from INR2,515 earlier), based on 12x Sep’24E EV/EBITDA (from Mar’24E EV/EBITDA earlier).

Sharp increase in OPEX/t led by a 47% rise in variable cost

• Revenue/EBITDA stood at INR40b/INR154m, +6%/-98% YoY and +2%/-93% v/s our estimate. Adjusted loss stood at INR748m as against a profit of INR4.5b/INR2.2b in 3QCY21/2QFY23. Cement sales volumes grew 4% YoY to 6.85mt (est. 6.96mt). RMC sales volumes rose 10% YoY.
• Realization improved by 2% YoY (but fell 2% QoQ). OPEX/t grew 25% YoY and 8% QoQ led by a 47%/9%/7% YoY increase in variable/freight costs/ other expenses. EBITDA/t dipped 98% YoY and 96% QoQ to INR23 (at a historic low, est. INR297) v/s INR1,083/INR563 in 3QCY21/2QFY23.

Highlights from the management commentary

• WHRS projects at Jamul and Kymore have been partially commissioned and the new projects at Chanda and Wadi plants are progressing well. The management is focusing on green power.
• The integrated plant at Ametha is expected to be commissioned by Mar’23. The management has also accelerated debottlenecking of various plants, with a focus on efficiency improvements. The company is trying to increase the usage of alternate fuels.