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MOSL: Morning India (24/July/18): 1. ACC (Upgrade to Buy); 2. Hind.Zinc; 3. United Spirits; 4. L&T Fin.Holdings; 5. Bajaj Auto; 6. Ceat; 7. Delta Corp; 8. South Ind.Bank; 9.Metals Weekly

MOrning India (24/July/18): 1. ACC (Upgrade to Buy); 2. Hind.Zinc; 3. United Spirits; 4. L&T Fin.Holdings; 5. Bajaj Auto; 6. Ceat; 7. Delta Corp; 8. South Ind.Bank; 9.Metals Weekly

 

Today’s top research idea

ACC: Volumes in-line; Margins beat led by higher-than-estimated realizations

• ACC's profitability gap with peers has narrowed significantly over the last few quarters on the back of its higher proportion of (a) premium sales and (b) sales from its new cost-efficient units of Jamul and Sindri. Additionally, ACC has managed to limit the cost increase, driven by its higher proportion of linkage coal, lower lead distance and route optimization. The company has also made efforts toward cost rationalization of fixed costs, resulting in improved profitability.
• While we acknowledge that ACC may be capacity constrained beyond CY19 (as there is no capacity addition happening), we believe that the current valuation gap of ~45% with peers does not warrant such an underperformance and the issue of limited capacity can be easily addressed could be partially addressed through debottlenecking at its key plants.
• We believe that ACC will continue narrowing its profitability gap with peers, led by a higher proportion of premium sales, optimization of sales and rationalization of fixed cost. Any efforts toward capacity addition will be an added advantage.
• We value ACC at 9x (30% discount to peers vs present discount of 45%) to arrive at a TP of INR1,633 (+25% upside). Upgrade to Buy.

Piping hot news

Retirement age for commercial vehicles may be fixed at 20 years

• A policy that proposes to take hundreds of thousands of polluting commercial vehicles off the road is likely to go for cabinet clearance soon. Under the plan, vehicles that are 20 years and older will stop plying from 2020, helping to curb emissions and boosting demand for new vehicles. “We have proposed to fix 20 years as the lifetime for commercial vehicles. The vehicle scrapping policy will come into force from 2020, after which any commercial vehicle that completes 20 years would go off the road,” a top government official said. “We are hoping to get the cabinet’s nod soon.”