Buy ACC; target of Rs 1914: Edelweiss

Edelweiss' research report on ACC

Industry is reeling under challenges of subdued volume growth and pricing pressure, which we believe poses risks to earnings estimates of incumbents. But, ACC seems to be an exception – its impressive performances in Q3CY17 (EBITDA surged 47% YoY) and 9mCY17 (EBITDA up 24% YoY) is driving ~6% upgrade to our CY17 EBITDA estimates. Q3CY17 EBITDA, at INR4.15bn (versus our INR3.3bn estimate), was steered by: 1) Strong volume growth of 17.6% versus our 15.6% estimate, led by capacity expansion and negative base; 2) Better than expected realisation (adjusted realisation dipped ~1% QoQ versus 2% estimate; and 3) Tight leash on costs. Given the volume trajectory, we estimate Q4CY17 also to be strong. Going ahead, we remain optimistic on recovery in cement demand and prices and hence see limited risk to our CY18 estimates. Maintain ‘BUY’ with a target price of INR1,914 on FY19E.

Outlook
The pan-India player will be a beneficiary of the expected recovery in cement demand and prices, while resilience in volume will keep earnings momentum intact. Factoring in 6% upgrade in CY17 estimate and limited risk to CY18 EBITDA estimate, we continue to value ACC at 14x FY19E EV/EBITDA. Maintain ‘BUY/SP’ with a target price of INR1,914.

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