Adani group-owned cement maker ACC’s strong performance on key financial metrics in Q1FY24 doesn’t seem to have impressed analysts on Dalal Street. While ACC’s announcement of the quarterly earnings in market hours on Thursday failed to induce a strong upward move on Friday as well, brokerage ratings varied from 'underweight' to 'buy'.
The cement makers’ shares traded flat on Friday, having closed at Rs 1,945, up merely 0.23 percent. Intraday, the stock was seen up by 1.74 percent.
ACC’s stock has seen a gradual rise from July 21 - having risen by 10.8 percent - but in year-to-date terms, it has declined by 20.28 percent.
Financials
ACC on July 27 reported a net profit of Rs 466.1 crore for the June quarter, up by 105 percent from Rs 227 crore reported in Q1FY23.
Revenue for Q1FY24 stood at Rs 5,201.1 crore, up by 16.4 percent from Rs 4,468 crore in Q1FY23.
The EBITDA (earnings-before-interest-taxes-depreciation and ammortisation) for Q1FY24 jumped by 81 percent YoY to Rs 770.9 crore. Margins for the quarter under review were up by 530 basis points at 14.8 percent on a yearly basis.
The sales volume of cement and clinker, primary revenue generators for the company, saw a 23.6 percent rise YoY at 9.4 million tonnes in the June quarter.
Increase in sales volume, reduction in fuel costs and improved operational efficiency reportedly aided the company in recording strong numbers for the quarter. ACC expects the EBITDA growth momentum to continue in oncoming quarters, the cement maker said in its commentary on the quarterly results.
Brokerage views
Although the cement maker’s quarterly earnings have beaten the market estimates, brokerages differ in terms of their ratings.
Factoring in ACC’s savings of Rs 250 per tonne on energy and raw material costs (which according to it is better than its peers) and high volume driven sales, Jefferies sees a 16 percent upside. The foreign brokerage recommends a buy and has set a target price of Rs 2,250.
On the other hand, Macquarie and Morgan Stanley have rated the stock 'neutral' and 'underweight', respectively. While Macquarie’s rating is a continuation of its previous stance with the target price set at Rs 1,998 per share, Morgan Stanley expects a 14 percent downside considering weak realisations and a slight sequential decline in ACC’s cash position. Morgan Stanley has set a target price of Rs 1,650 per share.
The variance in terms of brokerage ratings extends into the domestic realm as well.
Axis securities has recommended a buy at a target price of Rs 2,540, seeing a 31 percent upside from the prevailing price. “We expect the company to report volume growth of 12 percent CAGR over FY23-FY25E, EBITDA/tonne improving to Rs 920 in FY25 and margins to 16 percent,” the brokerage report observed. The brokerage expects operationalisation of the Ametha unit in Q2FY24 to benefit the company.
Motilal Oswal Financial Services (MOFS), on the other hand, has given a 'neutral' rating with the target price set at Rs 2,180. MOFS in its report acknowledged the cement maker’s quarterly performance having beaten its expectations. Considering the management’s guidance of sustaining the current cost structure, it expects the EBITDA figures for FY24E/25E to grow by 25%/23%. Noting that there is still a lack of clarity on ACC’s growth plans, the brokerage has decided to continue its stance considering that the stock continues to trade at attractive valuations.
Sectoral outlook
While the financial services firms and brokerages differ in their ratings, there is consensus in their demand outlook for the cements sector.
Foreign as well as the domestic brokerages expect the strong demand trend to continue considering the demand from the housing segment and an increased spending on infra-projects by the government ahead of general elections.
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