Edelweiss' report on ACC
"ACC’s Q2CY15 EBITDA of INR3.3bn (down 26% YoY) was 19% below our estimate due to higher-than-expected costs, even as volumes (down 2% YoY) and realisations (down 3.5% QoQ) were in line. Despite resumption of mining operations at Chaibasa (in mid February 2015) and Bargarh (in mid June 2015), elevated variable cost due to external purchase of clinker was disappointing. Variable cost/t stood flat QoQ versus our estimate of a decline and is expected to stay high in the near term given that mining operations at Chaibasa have again being suspended in July 2015 in the absence of state-level clearances. EBITDA/t at INR451 dipped 28% YoY. Taking cue from H1CY15 performance, weakness in the monsoon quarter of Q3CY15 and impact of mining shutdown at Chaibasa, we revise down CY15E EBITDA ~24%. Factoring the potential impact of linkage auctions from Q3CY16, we lower CY16E EBIDTA 5%. However, we remain positive on the sector given expected demand revival, slowing capacity additions and muted cost inflation. We continue to value ACC at 10x CY16E EV/EBITDA and maintain ‘BUY’ with revised target price of INR1,650 (INR1,760 earlier)", says Edelweiss research report.
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