Buy This Cement Major For Strong Upside Amid It Strong EPS Growth

Arihant Capital has given buy rating to the stock of Cement Major ACC Ltd for a potential upside of 12% if you buy it at the current market price of Rs 2174 apiece. ACC Limited reported weak set of numbers on operating profit and bottom line front in Q2CY22 and were below the estimates of Arihant Capital.

ACC Stock Outlook

The current market price of the stock is Rs 2174 apiece. The 52-week high is 2589 apiece and 52-week low is Rs 1900 apiece. The stock has given a return of 2.1% in 1 year and 25% in 5 years. If you buy the stock for 2174 apiece which is the current market price it can potentially surge to Rs 2435 apiece with a return of 12%.

Volume & Realization helps revenue growth

Revenue from operations grew by 15% YoY and 0.9% QoQ to INR 4468 cr above our estimate of INR 4323 cr. The growth in topine YoY was backed by realization and volume growth. Sales Volume grew by 11.8% YoY, however declined by 1.3% QoQ to 7.6 million tonne in line with our estimate of 7.4 million tonne. Realization/ton grew by 2.9 % YoY and 2.3% QoQ to INR 5879 against our estimate of INR 5842. Price hike taken in cement prices helped in improved realization.

Higher Input cost impact operating performance

Reported EBIDTA declined by 50.9% YoY, and 32.9 QoQ to INR 426 Cr below our estimate of INR 572 Cr. EBIDTA /tonne declined by 56.1% YoY and 32% QoQ to INR 560.5 below our estimates of INR 774. Reported EBIDTA margin contracted by 1281 bps YoY and 481 bps QoQ to 9.5%. YoY contraction in margin was mainly due to significant fuel cost increase despite project 'Parvat' delivering strong internal efficiencies.

Sharp decline in bottom line due to poor operating performance

Reported PAT declined by 60.6% YoY and 43.1% QoQ to INR 227 Cr below our estimate of INR 341 cr. Poor operating performance and higher depreciation expenses led to decline in bottom line PAT margin contracted by 957bps YoY and 386 bps QoQ to 5.1%.

Valuation & View

According to Arihant Capital, "At a CMP of INR 2156 stock is trading at EV/EBIDTA multiple of 10(x) and 8.2(x) to its CY22E and CY23E. Company delivered poor performance in Q2FY22 on operational front mainly due to rising input cost . Although with the moderation in crude oil prices and company cost efficiencies measures under project 'Parvat' is expected to remain very strong and help in partially offsetting the impact. The cost reduction journey will be further accelerated with commissioning of waste heat recovery projects in Jamul, Kymore & Ametha plants. Although we expect demand to remain muted in next quarter amid slowing down of construction activities due to on-going monsoon. However, from longer term point of view we are positive on the company considering factors like capacity expansion plan of company, Pick up of demand in cement led by government focus on infrastructure and pick up in real-estate. We value the stock at EV/EBIDTA multiple of 9.6(x) to its CY23E EBIDTA of INR 3741 cr to arrive at a target price of INR 2435 and maintain Accumulate rating on the stock."

About ACC Ltd

ACC Limited (ACC) is a leading player in the Indian building materials space, with a pan-India operational and marketing presence. Synonymous with cement, we have established our reputation as a pioneer organisation that has consistently set new benchmarks with our innovative research and product development. With our experience and expertise spanning over eight decades, we have actively contributed to India's progress. The current market capitalization is Rs 40,824 crore.

Disclaimer

The stock has been picked from the brokerage report of Arihant Capital Markets Ltd. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.