October 1, 2024
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ACC Stock Research Report by Deven Choksey Research
Analysis dated 28 September 2024
Sector: Banking
Price on Analysis date: Rs. 2513
Target Rs. 2923
(16.30% upside potential)
Target Period: 12 Months
ACC Limited, established in 1936 and now a subsidiary of the Adani Group, primarily operates in
the manufacture and sale of Cement and Ready-Mix Concrete. The company boasts an extensive
manufacturing footprint across India, predominantly serving the domestic market.
Revenue marginally declined due to weaker price realization, partially offset by strong volume
growth
In Q1FY25, ACC reported revenue of INR 51,549 Mn, down 0.9% YoY (-4.7% QoQ). The marginal decline
in YoY revenue was primarily driven by lower price realization, which stood at INR 5,054/Ton in Q1FY25
(vs INR 5,533/Ton YoY), however, the decline in revenue was partially offset by volume growth, as
volumes grew to 10.2 MT, up 8.5% YoY. The sequential decrease in revenue is attributable to a QoQ
decline in volume (-1.9% QoQ) coupled with weaker price realization (-2.8% QoQ). The weaker price
realization was due to sector consolidation, the general election, and the adverse impact of heat waves.
EBITDA/Ton fell to INR 609/Ton in Q1FY25, down 21.8% YoY, primarily due to weaker price realization,
and increased raw material cost, though partially offset by lower freight, power & fuel, and other expenses.
Power & Fuel costs were reduced by 18.1% to INR 974/Ton, on the back of the Waste Heat Recovery
Systems (WHRS) power mix going up, improved captive coal consumption, and higher usage of alternative
fuel. Freight and Logistics cost/Ton reduced to INR 1,025/Ton, down 14.2% YoY, and is expected to
reduce further in the coming quarters.
Volume expansion and reduction in costs to boost growth
Adani Cement has recently announced the acquisition of Penna Cement through Ambuja Cements, which
is expected to bolster its market share in the southern markets. The integration of the acquired entity is
anticipated to yield benefits in Q2FY25E, with full availability expected in Q3FY25E. The acquisition is
projected to create synergies between Adani Group’s plants, particularly ACC plants in the South and the
Penna units, resulting in advantages in both volume and cost. ACC also plans to commission two new
units: Sindri, with a capacity of 1.6 MTPA, set to begin operations by Q4FY25E, and Salai Banwa, with a
capacity of 2.4 MTPA, expected to start by Q1FY26E, resulting in volume expansion.
The company aims to reduce total operating expenses by INR 500-600/Ton by improving the fuel mix,
enhancing WHRS capacities, and cutting freight costs. Management has outlined a cost-optimization
strategy designed to boost profitability. This strategy includes securing raw materials at competitive prices,
optimizing the use of WHRS, increasing the utilization of Alternative Fuels and Raw Materials (AFR), and
reducing lead distances through enhanced logistical facilities.
We expect a Revenue/ EBITDA/ PAT CAGR of 8.8%/ 15.1%/ 8.4% respectively over FY24 to FY26E.
We maintain our multiple of 13.0x to FY26E EBITDA of INR 40,527 to arrive at a target price of INR
2,923/ share. This implies a left-over upside of 16.3% from the CMP. We have a BUY rating on the
shares of ACC Ltd. since 02nd August 2024.
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