Price ACC share: ACC shares gained 6 percent in early trading as the cement company released its Q1FY23 results. The cement maker reported a 29.6 percent year-over-year (YoY) decline in consolidated net profit of Rs 396.3 crore for the first quarter ended March 31, 2022. The company, which tracks its January-December annual financial cycle , posted a net profit of Rs 563 crore in the January-March quarter a year ago. Total revenue for the quarter increased 3.1 percent year-on-year to Rs 4,426.5 crore from Rs 4,292 crore in the same quarter a year ago.
ACC is a subsidiary of the Swiss building materials giant Holcim Group. At an operational level, EBITDA fell 26.2 percent to Rs 634.6 crore in Q1 FY23 over Rs 860 crore in Q1 FY22. EBITDA margin was 14.34 percent in Q1 FY23, compared to 21.5 percent in Q1 FY22. EBITDA is earnings before interest, taxes, depreciation and amortization.
“The quarter from January to March 2022 was impacted by the global increase in fuel costs due to the general geopolitical situation,” ACC’s statement of results quoted its chief executive officer and CEO Sridhar Balakrishnan as saying. The efficiency and cost-cutting actions remained strong and helped the company “partially offset the impact,” the statement said.
Should investors buy, sell or hold the shares?
BofAML has maintained an underperform rating for the stock with a target of Rs 2,000. The numbers were in line as cost-cutting measures partially offset the increases in input costs. The volume trajectory remains at a marginal year-on-year decline.
Research house Goldman Sachs has maintained a neutral rating for the stock with a target of Rs 2,300. Goldman Sachs expects cost pressures to keep profitability under control in the second and third quarters of 2022. Major capacity expansions are still 9-12 months away and volume and EBITDA growth is likely to lag behind competitors.
Prabhudas Lilladher said in his note that ACC reported earnings in accordance with our and consensus (CE) estimates. EBITDA declined 26 percent year over year at Rs 635 crore (PLe: Rs 630 crore, CE: Rs 647 crore) due to a 3/24 percent decline in volumes/margins.
ACC has narrowed the margin gap with competitors in recent years thanks to a visible reduction in production costs and increased operational efficiencies under the Parvat program, complemented by rationalization of logistics costs through a master supply agreement (MSA) with Ambuja Cement . However, the scope for further cost reduction remains limited as most of the levers are already captured in the current cost dynamics, except for the reduction in energy costs due to the emerging WHR plants.
“Despite the slow pace of price increases and sharp increases in costs, we continue to appreciate ACC for its attractive valuations and the upcoming 5mn capacity expansion in one of the most profitable and growing regions, the Central Region,” the brokerage said. said. The brokerage maintains a purchase with a target price of Rs 2,300 based on EV/EBITDA of 12x 2023E.
Motilal Oswal said: “We expect ACC to benefit from its capacity expansion plans in central India. The benefits of cost-cutting strategies (Project Parvat and MSA) are expected to continue.”
“The company is in a good position to pursue growth opportunities as it will have a net cash of Rs 7,900 crore in 2023 versus Rs 7,440 crore in 2021, despite a growth capex of Rs 3,000 crore over CY22-23E. Management said it will increase capacity to 45-50 million tons per year over the next two to three years,” it added.
“We value ACC at 11.5x 2023 EV/EBITDA (versus the 10-year average EV/EBITDA of 12x) to arrive at our target price of Rs 2,485. We maintain our buy recommendation for the stock. In the short term, news streams about Holcim’s possible exit from India will keep an eye on stocks,” it said.
Reliance Securities said: “While realizations were better during the quarter on both a QoQ and YoY basis, input cost pressures took a toll on EBITDA margins, which shrank by 629 bps YoY (up 96 bps QoQ). to 12.2 percent and 29 bps higher than our estimate Higher input costs remain the top concern for all cement companies and are expected to remain so in CY22/FY23 unless fuel and diesel prices cool significantly While ACC has worked in various ways to improving cost-efficiency is expected to begin to bear fruit.The commissioning of new capabilities and further improvement of operating parameters by setting up WHRS in several factories should help it witness sustainable growth. We currently have a BUY recommendation for the stock with a 1-year target price of Rs2,636.”
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