ACC valuations to benefit from June quarter earnings
Cement giant ACC Ltd reported an exceptional operating performance in the June quarter, pushing its share up 7% on Tuesday.
Higher than expected achievements and tight cost control measures were among the main positive lessons for investors in this stock. Average achievement per tonne increased by approximately 7.5% on a sequential basis, exceeding expectations of approximately 5% growth. The outperformance on the achievements front was driven by high cement prices in key ACC markets in North and Central India, higher sales of premium products and lower discounts. A favorable energy mix, efficient logistics and various profitability measures within the framework of the Parvat project have made it possible to contain a sharp increase in operating costs.
Therefore, ACC’s EBITDA of ₹875 crore for Q2CY21 topped Bloomberg analysts consensus estimate of ₹720 crores. EBITDA is the abbreviation of earnings before interest, taxes, depreciation and amortization. The CCA tracks the calendar year as its fiscal year. On a per tonne basis, EBITDA was approximately ₹1,280 per tonne, which analysts say is the highest in a decade. Analysts at Jefferies India Pvt. Ltd said ACC’s EBITDA on a two-year CAGR basis was up 6%. CAGR stands for compound annual growth rate. As for volumes, they increased by 43% year-on-year to 6.84 million tonnes thanks to a favorable base. However, it went down around 14% sequentially.
Analysts said the sequential drop in volumes despite the second wave of covid and a lean season is less than previously feared. Strong earnings performance in a seasonally weak quarter bodes well for its valuations.
The ACC stock trades at a one-year EV / Ebitda futures around 10 times. EV stands for enterprise value. Peers Shree Cements Ltd and UltraTech Cement Ltd are trading at a valuation multiple of 16x and 13x, respectively, according to Bloomberg data. “VAC’s valuation gap to its peers has widened by about 25% over the past three to four months, and the pace of the second quarter should help close some of the gap,” Emkay Global Financial Services Ltd. analysts said.
ACC has lagged behind other Pan-Indian cement plants due to its capacity constraints. The company has launched the project to expand the capacity of its Ametha unit in Madhya Pradesh. Its waste heat recovery projects in Jamul and Kymore are on track and should be commissioned by Q2CY22. Analysts hope the overhang of capacity constraints will soon be behind the company.
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