MOSL: ACC (Neutral)-Margin beat led by realization improvement

ACC: Margin beat led by realization improvement

(ACC IN, Mkt Cap USD4.4b, CMP INR1574, TP INR1747, 11% Upside, Neutral)

 Volume growth coupled with realization improvement: 1QCY18 volumes increased 8% YoY to 7.11mt (v/s our estimate of 7.06mt), led by ramp-up of capacity in the East as also growth in underlying markets. Cement realization grew ~1% QoQ (and 6% YoY) to INR4,631/t (v/s our estimate of INR4,547/t) due to price improvement in the East and higher proportion of premium sales (18% YoY growth). Revenue increased 14% YoY to INR36.2b (v/s our estimate of INR35.2b).

• Margin improvement led by QOQ decline in cost curve: Cost/t at INR4,407 (+5% YoY; -1% QoQ) was largely in line with our expectation of INR4,420. The 1% QoQ decline was due to lower raw material cost offset by higher freight and power & fuel cost. Other expenses were flat YoY, despite higher volumes, due to cost saving measures. Blended EBITDA/t was INR691 (v/s our estimate of INR570) (+10% YoY; +17%QoQ); EBITDA grew 24% YoY to INR4.9b (v/s our estimate of INR4b). Depreciation declined 11% YoY to INR1.5b. Tax rate was higher at 34% v/s 19% in 1QCY17. Reported PAT grew 16% YoY to INR2.4b (v/s our estimate of INR2.1b).
• Key highlights from management presentation on cost curve: (1) RM cost increased YoY due to increase in slag and fly ash prices, (2) P&F cost/t increased due to increase in fuel prices and lower availability of FSA linkage, (3) Freight cost/t increased QoQ due to increase in diesel prices.