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Reliance Securities
ACC (Buy)
CMP: ₹1,521.4
Target: ₹1,710
Notwithstanding dismal sale volume, ACC has reported a strong performance in 3QCY19 aided by higher-than-estimated average realisation and reduction in unitary opex. Its core operating profit grew by a strong 32 per cent y-o-y to ₹490 crore. EBITDA/tonne stood at about ₹747 (as against ₹547 in 3QCY18 and ₹943 in 2QCY19), which is about ₹200/tonne higher than our estimate.
The variance is primarily led by: a) higher realisation (₹80/tonne above our estimate); and b) lower opex (about ₹110/tonne below our estimate). Notably, higher sales in North and Central regions (around 40 per cent of total) and persistent volume traction in premium and value added products were the prime reasons for better realisation, while cost optimisation measures and decline in input costs led to lower opex. Sales volume declined by 1.7 per cent y-o-y and about 11 per cent q-o-q to 6.44 million tonne (mt). Operating cost/tonne stood at about ₹4,610 (+1 per cent y-o-y and -1.4 per cent QoQ). Further, its capacity expansion programme is moving as per schedule and 3.7 mt (out of total 5.9 mt) is likely to be commissioned in 3QCY21. We believe firm realisation in 3QCY19 and further likely recovery in ensuing months are likely to augur well for the company and resultantly, its profitability is expected to remain firm in the ensuing quarters.
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