Buy ACC, target Rs 1846: Edelweiss Securities
Due to lack of domestic coal availability, ACC’s fuel cost/t remained elevated despite global fuel prices (e.g. pet coke and imported coal) spiralling down.
By ETMarkets.com | Updated:
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Edelweiss Securities has given a buy rating on ACC with a price target of Rs 1,846.
"Our recent interaction with ACC indicates potential cost benefits would accrue to the company in the wake of declining pet coke prices and increased availability of linkage coal (refer our note - Potential flare-up in fuel savings). The management’s focus on completing the 5.9mtpa cement (3mtpa clinker) expansion by Q3CY21 offers much-needed volume growth visibility (albeit CY22 onwards). The company’s continued drive towards premium products – 19% of total volumes in CY18 and targeted to reach 30% over the next few years – as well as expected savings (3% of PBT) from the master supply agreement (MSA) with parent Ambuja Cement from CY20 bode well for margins. With ACC likely to be one of the prime beneficiaries of our positive sector hypothesis (of stable demand over medium term, rising industry clinker utilisation and benign fuel cost), we maintain a buy rating on the stock," the brokerage said.
Cost relief on the cards
Due to lack of domestic coal availability, ACC’s fuel cost/t remained elevated despite global fuel prices (e.g. pet coke and imported coal) spiralling down. However, with increased availability of linkage coal and a further dip in global fuel rates, energy cost is expected to trend down over the ensuing quarters. Besides, the MSA with parent Ambuja Cement would yield synergies CY20 onwards.
Capex: Timely completion holds key
The 5.9mtpa cement and 3mtpa clinker expansion is a key focus area for ACC. The company’s endeavour is to commission the project by Q3CY21, which will drive robust volume growth in CY22. The bulk of its new cement capacity coming up in the lucrative central region (4.8mtpa) is promising. The capacity expansion also provides much-needed volume growth visibility, which would be a key trigger for the stock in our view.
Outlook and valuation: Sector tailwinds intact; maintain ‘BUY’
"Our recent interaction with ACC indicates potential cost benefits would accrue to the company in the wake of declining pet coke prices and increased availability of linkage coal (refer our note - Potential flare-up in fuel savings). The management’s focus on completing the 5.9mtpa cement (3mtpa clinker) expansion by Q3CY21 offers much-needed volume growth visibility (albeit CY22 onwards). The company’s continued drive towards premium products – 19% of total volumes in CY18 and targeted to reach 30% over the next few years – as well as expected savings (3% of PBT) from the master supply agreement (MSA) with parent Ambuja Cement from CY20 bode well for margins. With ACC likely to be one of the prime beneficiaries of our positive sector hypothesis (of stable demand over medium term, rising industry clinker utilisation and benign fuel cost), we maintain a buy rating on the stock," the brokerage said.
Cost relief on the cards
Due to lack of domestic coal availability, ACC’s fuel cost/t remained elevated despite global fuel prices (e.g. pet coke and imported coal) spiralling down. However, with increased availability of linkage coal and a further dip in global fuel rates, energy cost is expected to trend down over the ensuing quarters. Besides, the MSA with parent Ambuja Cement would yield synergies CY20 onwards.
Capex: Timely completion holds key
The 5.9mtpa cement and 3mtpa clinker expansion is a key focus area for ACC. The company’s endeavour is to commission the project by Q3CY21, which will drive robust volume growth in CY22. The bulk of its new cement capacity coming up in the lucrative central region (4.8mtpa) is promising. The capacity expansion also provides much-needed volume growth visibility, which would be a key trigger for the stock in our view.
Outlook and valuation: Sector tailwinds intact; maintain ‘BUY’
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"We expect pan-India player ACC to be a prime beneficiary of the positive industry fundamentals – high industry clinker utilisation, bright demand outlook over medium term and benign fuel cost. We continue to value the stock at 12x CY20E EV/Ebidta and maintain ‘Buy/SP’ with a target price of Rs 1,846 per share. The stock trades at 9.4 times CY20E EV/Ebitda," the brokeage said.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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