Buy ACC; target of Rs 1835: Prabhudas Lilladher

ACC reported earnings for Q2CY16 in line with our expectation. Driven by sharper than expected cut in costs, EBITDA/t reached its highest level in 5 quarters despite realisations impacted by expiry of excise duty benefit at HP plant. We were pleasantly surprise by faster than expected increase in usage of petcoke, reaching 60% in this quarter (v/s our expectation of Q4CY16). Rationalisation of freight and employee cost too proceeded better than expected, with steps taken by company clearly showing results. Company recently commissioned new kiln of 2.8mtpa capacity, which would provide further impetus to margins. We expect expansion of EBITDA/t by ~Rs60‐70/t on overall company level on the back of cost savings at Jamul plant. Driven by strong and structural improvement in quality of operations, we maintain our BUY rating with TP of Rs1835, EV/EBITDA of 15x CY17E.