What led ACC stock to rally 6% today despite a 30% drop in Q1 net profit?

NEW DELHI: Shares of ACC climbed nearly 6 per cent in Wednesday's trade despite a 29.6 per cent year-on-year fall in March quarter profit. Analysts said there are limited risks to future earnings growth and that the Q1 Ebitda miss is largely priced in due to the undemanding stock valuations.

The Street, they said, is keenly awaiting any details of Holcim exit news, which may help the stock outperform the market. Price targets on the stock suggest up to 27 per cent potential upside over Tuesday's closing price of Rs 2,057.90.

Edelweiss expects the cement stock to outperform going ahead given the undemanding valuations of 10.9 times 2022 and 8.8 times 2023 EV/Ebitda. In case the parent’s stake is on the block, ACC deserves a premium over its $100 EV/tonne valuation, for its strong brand and pan-India network, it said.


The muted quarter was priced-in, given Ebitda broadly matched Street’s and our expectations, it said.

The stock rose 5.68 per cent to hit a high of Rs 2,174.85 on BSE.

ACC, a part of Holcim group, is the third largest manufacturer of cement and ready mix concrete with total
capacity of 36.1 million tonnes. JM Financial noted that ACC’s project Parvat has succeeded in reducing the cost gap with peers. The company, it noted, has realised a benefit of Rs 300 per tonne and another Rs 150 per tonne of benefit is expected to flow through in upcoming quarters.

"Additionally, the concerns on growth are getting addressed with 6.2 MTPA of capacity addition in the interim and target capacity of 45-50MTPA in the long term. We continue to value ACC at 11 times one year forward EBITDA. We maintain BUY with a revised target of Rs 2,400," it said.

Kotak Institutional Equities said that the demand is gradually recovering in June quarter and cement producers have started taking price hikes from mid-March. But further price hikes are required to fully absorb the upcoming cost pressures from inflation in coal and diesel prices, it said.

While this brokerage has cut its earnings for the stock, factoring higher costs, it has increased its target price marginally to Rs 2,180 from Rs 2,160 due to rollover to June 2024 estimates.

Motilal Oswal said that even as near-term challenges remain due to higher petcoke prices, it has kept its positive stance on the sector given the robust demand outlook.

"ACC’s capex plans are progressing as per schedule," it said while suggesting that attractive valuations makes it recommend buy on ACC with a target of Rs 2,485. ICICI Securities has a higher target of Rs 2,615 on the stock. JM Financial sees the stock at Rs 2,400.

YES Securities said the capacity addition would provide ACC a production headroom to grow volumes from 2022 onwards. It expects a volume growth of 8 per cent for both 2022 and 2023.

Due to elevated fuel prices, it has lowered Ebitda estimate by 19 per cent and PAT by 26 per cent for 2022 while keeping estimates unchanged for 2023, envisaging cost normalisation.

"Due to the recent steep correction and target of Rs 2,400 at 10 times EV/Ebitda on the 2023 estimate, we recommend ‘BUY’ (earlier ADD)," it said.