MOSL: ACC (Upgrade to Buy)-Volumes in-line-margins beat led by higher-than-estimated realizations
ACC: Volumes in-line; margins beat led by higher-than-estimated realizations
(ACC IN, Mkt Cap USD3.7b, CMP INR1305, TP INR1633, 25% Upside, Upgrade to Buy)
- Realizations higher than estimates: 2QCY18 volumes increased 7.4% YoY to 7.2mt (in-line), led by the east region, which recorded double-digit volume growth. Cement realizations grew ~5% QoQ (+3% YoY) to INR4,872/t (est. of INR4,731) due to a higher proportion of premium sales (+44% YoY). Revenue grew 11.5% YoY to INR38.5b (est. of INR37.1b).
- Margin improvement led by healthy realizations and flat cost curve: Cost/t remained flat QoQ (+5% YoY) at INR4,393. Power & fuel cost/t declined 2% QoQ (est. of +2%). Blended EBITDA/t stood at INR922 (est. of INR698; -2% YoY, +34% QoQ), resulting in EBITDA of INR 6.67b (+5% YoY, +36% QoQ; est. of INR5b). Operating margin stood at 17.3% (-1.05pp YoY, +3.8pp QoQ). Adj. PAT stood at INR3.7b (+15% YoY), as employee expenses included a charge of INR438m on account of the Employee Separation Scheme. Reported PAT increased 1% YoY to INR3.3b (est. of INR2.7b).
Why does ACC traded discount to peers?
- ACC's profitability over the last few years has lagged peers by ~20-25% due to the higher cost curve on account of its legacy inefficient plants. Also, limited capacity addition had resulted in a market share loss for ACC in its key markets until it started adding capacity in the east region in 2016. This resulted in multiple de-rating for the company v/s peers, despite ACC being a premium/leading brand in its focus markets.
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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