MOSL: ACC (Buy)-Margins improve led by higher realizations
ACC: Margins improve led by higher realizations
(ACC IN, Mkt Cap USD4.3b, CMP INR1567, TP INR2040, 30% Upside, Buy)
- Volumes down marginally but realizations improve: Volumes declined 0.6% YoY to 7.2mt in 2QCY19. However, premium product volumes were up 9% YoY. Cement realizations increased 8% YoY (+12% QoQ) to INR5,255, led by healthy price hikes in the quarter. Revenue grew 8% YoY to INR41.5b (our estimate: INR37.1b), led by optimization of both market and product mix.
- Profitability improves 18% YoY: Blended cost/t increased 6% YoY (+4%QoQ) to INR4,678. However, blended EBITDA/t was up 18% YoY (+53% QoQ) to INR1,086 due to healthy realizations. Consequently, EBITDA increased 17% YoY (+47% QoQ) to INR7.8b (our estimate: INR5.8b). Operating margin came in at 18.8% (+1.5pp YoY, +5.3pp QoQ). Adj. PAT increased 22% YoY to INR4.5b (our estimate: INR3.4b).
- Key takeaways from management presentation: (1) Ready-mix concrete volumes were up 11% YoY. (2) Power & fuel cost/t increased 9% YoY due to higher premium on e-auction coal and increased pet coke/imported coal prices. The company has enhanced the use of alternative fuels. (3) Freight cost/t increase was restricted to 1% YoY due to road freight reduction and logistics operating efficiency improvement.
- Valuation view: ACC plans to add capacity of 6mt at total capex of INR30b (~USD71/t), which will come on stream by CY21. Capex will be funded by internal accruals and help the company to protect its market share in the central and eastern regions. The profitability gap between ACC and its peers has narrowed significantly, led by a higher proportion of (a) premium sales and (b) sales from its new cost-efficient units at Jamul and Sindri. We increase our EBITDA/PAT estimate by 16%/10% for CY19 and by 13%/8% for CY20 to factor in higher realizations. The stock trades at 7.4x CY20E EV/EBITDA. We value the stock at 10x Jun'21E EV/EBITDA (30% discount to UTCEM) and arrive at a TP of INR2,040 (implied EV/tonne of USD125 on CY20).
Acc is a cement and concrete manufacturing group based in India. Co. is predominantly engaged in the production and selling ordinary portland cements, composite cements and special cements and ready mix concrete. In addition, Co. is engaged in the provision of consultancy services for the overseas markets and real estate development. Through its subsidiaries, Co. is also engaged in manufacturing and selling of rubber tire, cement machinery, part of machinery and cast articles of alloy steel; trading in cement transportation; and distributing bulk cement. Co.'s operations are organized along two primary business segments: Cement and Ready Mix Concrete.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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