Cost-control measures cement ACC’S Q2 showing

Valuation of 7.6x its CY21 Ev/ebitda and Ev/tonne of $79 appears attractive

ACC’S performance in the second quarter ended June 30, 2020 (Q2) bore the brunt of the lockdown as cement volumes declined. ACC’S accounting year is January-december. However, good realisations and cost-control measures lifted its operational performance.

While cement demand was significantly impacted in the peak months of April and May, some recovery was seen in June. Yet, ACC’S sales volumes declined 34 per cent year-on-year (YOY) and 27 per cent sequentially to 4.8 million tonne (mt) in Q2. However, it was in line with estimates of brokerages such as Emkay Global.

Cement realisations held the fort. Aided by production and pricing discipline among industry players, the all-india average cement price per 50kg bag was up 7.6 per cent sequentially and 2 per cent YOY to ~335 - 340.

Thus, ACC’S reported cement realisations stood at ~5,144 per tonne according to analysts, up 9.4 per cent sequentially but marginally lower by 1.3 per cent YOY.

Lower prices of inputs such as coal and pet coke led to a fall in fuel and freight expenses, the two biggest cost components. Operating cost per tonne, thus, contracted by 7.5 per cent YOY and 2.7 per cent sequentially to ~4,326, as employee costs and other expenditure, too, fell.

With firm realisations and lower cost, Ebitda per tonne, according to analysts, was at ~915, better than ~741 in the March 2020 quarter, but a shade lower than ~922 in the year-ago period.

Volumes were in line with estimates, while cost controls surprised positively, said Kunal Shah of YES Securities, Ebitda (excluding other operating income) at ~444 crore, down by a third YOY, was ahead of a consensus estimate of ~363 crore.

Pre-tax profit at ~399.81 crore was in line with expectations of ~396 crore, whereas net profit of ~268 crore, down 41 per cent YOY and 16 per cent sequentially beat estimates of ~244 crore.

After the results, Emkay Global raised its CY20, CY21, and CY22 Ebitda estimate by 51, 32, and 25 per cent, respectively, considering higher cement prices, cost-saving initiatives, and improved demand scenario. YES Securities, too, has raised its Ebitda estimates by 29.3 per cent and 6.1 per cent for CY20 & CY21, respectively.

Valuations, too, appear attractive at 7.6x its CY21 enterprise value (Ev)/ebitda and an Ev/tonne of $79, say analysts.

ACC’S stock jumped 4 per cent on Tuesday after the firm reported its strong performance. However, its sustainability is crucial. Binod Modi at Reliance Securities maintains his positive stance, but says weak volume scenario remains a near-to-medium term overhang on the sector.