EUR 120.00 For Business Accounts Only

MOSL: ACC: Weak performance as expected; downgrade to Neutral (ACC IN, Mkt Cap USD5.1b, CMP INR2156, TP INR2260, 5% Upside, Downgrade to Neutral)

Stock outperformance v/s other stocks unwarranted

• ACC’s 2QCY22 result was weak as expected, though, the company met with our muted expectations. EBITDA declined 51% YoY to INR4.25b (v/s estimated INR4.29b) and OPM contracted 13pp YoY to 9.5% (v/s estimated 9.9%) due to cost pressures. EBITDA/t dipped 56% YoY to INR563.
• Earnings are expected to come under further pressure in 3QCY22 led by rising costs. We further cut our EBITDA estimates by 7%/4% and EPS estimates by 9%/4% for CY22/23, respectively.
• ACC trades at 12x CY23E EV/EBITDA (in line with its 10-year historical average) and leaves little room for upside. We downgrade the stock to Neutral with a revised TP of INR2,260 (based on 12x Mar’24E EV/EBITDA).

Cement volume 2% above estimate; EBITDA/t 3% below estimate

• Revenue/EBITDA/adjusted PAT stood at INR44.7b/INR4.3b/INR2.2b (+15%/-51%/-60% YoY and +3%/-1%/-1% v/s our estimate), respectively. Cement sales volume grew 10.5% YoY to 7.56mt (est. 7.40mt). RMC sales volume rose 43% YoY to 0.83cubic meters.
• Grey cement realization improved 2% YoY/4% QoQ. Blended realization improved 4% YoY/3% QoQ on higher RMC revenue (up 53% YoY).
• Blended cost/t grew 22% YoY/9% QoQ, led by higher variable and freight costs (elevated coal/petcoke/diesel prices). EBITDA/t dipped 56% YoY/32% QoQ to INR563 (at a 26-quarter low).
• In 1HCY22, ACC’s revenue grew 9% YoY backed by increase in blended realization/volume by 3%/6% YoY, respectively. However, EBITDA declined 39% YoY due to a sharp increase in operating cost/t (up 18% YoY).
• ACC’s OCF turned negative (INR7.6b) v/s INR4.2b in 1HCY21 owing to lower profitability and increase in working capital (up at INR15.8b v/s INR11.9b in 1HCY21) as well as higher tax outgo of INR2.3b v/s 1.3b in 1HCY21.
• Capex stood at INR10.8b v/s INR3.4b in 1HCY21. Net cash plunged to INR45.8b from 74.2b in Dec-21.

Highlights from the management commentary

• Project work at Ametha Greenfield integrated unit (2.7mtpa clinker, 1mtpa cement and 16.3MW WHRS) is on track and is likely to be commissioned by 4QCY22.
• Orders have been placed for Waste Heat Recovery Systems (WHRS) at Chanda and Wadi plants. WHRS projects are already under implementation at Jamul, Kymore and Ametha plants. Post-completion of all projects, WHRS capacity will augment to 75MW from 7.5MW at present.