Buy ACC; target of Rs 1800: P Lilladher

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26 Aug, 2025 12:21

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ACC reported earnings for Q1CY15 above our expectation. Lower than expected costs drove the beat in earnings. We expect costs to further come down with the restoration of limestone mining in Jharkhand mines and likely resumption of limestone mines in Orissa by May (States's mining panel already recommended the mine for renewal). We raise our TP to Rs1800/share from earlier Rs1690 as we value the company at higher EV/T of US$150 (earlier US$140/t)  to account for improved operations and better visibility on commissioning of its Jamul plant expansion.

Earnings beat by a wide margin, driven by lower costs: Volumes fell sharply by 10% YoY to 5.82m tonnes, weaker than our estimate of 6.03m tonnes. While, realisations rose 8.3% YoY/Rs379 to Rs4,958/t, above our expectation of Rs4,927 on the back strong growth in RMC business. QoQ, realisations were up 3.4% or Rs162/t. The real delta came on the front of costs, led by lower packing material costs, flat employee cost and lesser RM cost. Total cost/t rose 5.7% YoY/Rs230 to Rs4,245 (PLe: Rs4,374). It is a  highly satisfactory show in the wake of reduced volumes and higher RM costs due to closure of limestone mines in eastern region. EBITDA/t rose 26% YoY to Rs713, above our expectation of Rs553. EBITDA grew 14% YoY to Rs4.1bn (PLe: Rs3.3bn). Pre-exceptional PAT grew mere 1% to Rs2.5bn (PLe:Rs2.1bn), impacted by 24% YoY (Rs335m) increase in depreciation (due to change in useful life of assets under the new Cos act). 

Valuation and Outlook: "ACC underperformed its peers for a considerable period due to its higher cost operations. Hence, we always believed that lower costs and efficient operations on a sustainable basis would be the key for re-rating of ACC's valuations. ACC addressed high costs with the modernisation of old and obsolete plants, increased usage of pet coke/alternate fuel and rationalisation of freight cost. We expect continuous reduction in costs over the next 18 months on the back of elevated capacity utilisation and commissioning of modernisation projects. Buy the stock with a target price of Rs 1800", says Prabhudas Lilladher research report.

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