ACC stock gains over 3.6% post-March quarter results; turns flat later

Analysts at Motilal Oswal Financial Services (MOFSL) note that ACC trades at 35-55 per cent discount to peers such as Shree Cement, UltraTech and Ramco.
Shares of ACC Ltd gained as much as 3.66 per cent to Rs 1,178 apiece on the BSE on Wednesday, even as the company reported 6.64 per cent decline in its consolidated net profit at Rs 323.02 crore for the March quarter 2020, impacted by volume decline during the lockdown last month. The company, which follows January-December financial year, had posted a profit of Rs 346.02 crore in the same quarter a year ago.

At 09:28 am, the stock was trading nearly a per cent higher at Rs 1,147.30, thus paring most of its early trade gains. In comparison, the benchmark S&P BSE Sensex was trading 0.23 per cent higher at 30,708 levels. 

ACC's volumes were down 13 per cent YoY to 6.56 million tonnes due to the shutdown of operations from March 24, 2020 under the government’s directives. This led to around 11 per cent YoY decline in revenue at Rs 3,501.71 crore.

"Until February 2020, Cement and Ready Mix Concrete volume benefitted from a healthy growth. Despite COVID-19 impacting operations in the month of March, we have delivered a double digit growth in EBITDA for the first Quarter of 2020 compared to same period last year," ACC Managing Director & CEO Sridhar Balakrishnan said. READ MORE

This growth has been supported by significant focus on premium products, increase in value added solutions in our Ready Mix business and results of cost reduction exercise in manufacturing and logistics, he said.

Analysts at Motilal Oswal Financial Services (MOFSL) note that ACC trades at 35-55 per cent discount to peers such as Shree Cement, UltraTech and Ramco. "We believe that such a large valuation discount is excessive as ACC has arrested its market share losses since CY17 and should continue to grow in line with the market. Secondly, its net cash balance sheet (22% of market cap) places it well to withstand any extended disruption from COVID-19, and thirdly, with its planned capacity expansions in CY22, the proportion of inefficient assets would decline and improve profitability."

As regards valuation, the brokerage values ACC at 8.5x CY21E EV/EBITDA (~35% discount to the past 5-year average of 12.7x) to arrive at a target price of Rs 1,370, which implies a target Enterprise Value per Tonne (EV/t) of USD 80 and target P/E of 20x on CY21. It has maintained "Buy" call on the stock. 


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