We downgrade ACC Ltd to ‘hold’ from ‘buy’ with a revised price target of R1,130 (earlier R1,336) based on $102 EV/tonne valuation (15% discount to the $120/ tonne replacement cost).
Historically, at the mid-point of the industry cycle, the stock has traded at a 1% premium to replacement cost, but we believe a 15% discount is justified, given its lower-than-industry average profitability.
ACC reported results with revenue and Ebitda coming in line with our estimates, but consolidated PAT came in 94% above our estimates at Rs 280 crore (+10% y-o-y, +132% q-o-q) due to higher other income and reversal of tax provision of R75.9 crore during the quarter.
Recurring PAT was 40% ahead of expectations.
Net revenues for the quarter came in at Rs 2,690 crore, which included Rs 140 crore of revenues from the RMC division. Cement revenues were R2,550 crore (-2% y-o-y, +8% q-o-q), which was in line with expectations as both volumes (5.9 million tonne, -2% y-o-y, +6% q-o-q) and realisation (R4,364 per tonne, flat y-o-y, +2% q-o-q) were in line with expectations.
ACC’s 2% q-o-q realisation improvement is better than that for Ambuja Cements and Ultratech, given its higher exposure to the south India region, which saw a q-o-q price increase.