ICICI Direct recommended hold rating on ACC with a target price of Rs 1765 in its research report dated July 19, 2019.
ICICI Direct's research report on ACC
ACC reported a strong set of Q2CY19 numbers, supported by strong realisations. Revenues witnessed 7.7% YoY growth to Rs 4,059 crore. Volume growth remained flat at 7.2 MT due to a subdued demand environment on account of slow pace in construction activity. Revenue growth was entirely contributed by higher blended realisations, which came in at Rs 5,607/t. The RMC division reported strong growth of 11% YoY to 0.85 million cubic metre (cum). EBITDA margins were better than our estimates at 17.1% owing to better realisations. Consequently, EBITDA improved 27% YoY to Rs 693 crore. A strong operational performance led to 38% growth in PAT to Rs 456 crore. Also, there was a change in the top level management with current CFO Sunil Nayak being assigned a different role in the LafargeHolcim Group and Rajani Kesari being appointed the new CFO.
However, the capacity constraints faced by ACC imply a slower than industry growth rate. However, we expect no deterioration in balance sheet quality as ACC is expected to generate strong operating cash flows exceeding Rs 2000 crore each in CY19E and CY20E. We maintain our HOLD rating with a target price of Rs 1765/share (i.e. at 12x CY20E EV/EBITDA).
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