HOLD

Result Update ACC Limited Target Price

15thJuly, 2022 Cement 2010

Cost Inflation Drags Margins; Capacity Expansion Progressing Well

CMP as of July 14, 2022
ACC reported Revenue/Volume growth of 15%/10% YoY but EBITDA/APAT de-growth of
51%/59% respectively YoY, attributable to higher costs during the quarter. CMP (Rs) 2160
The company recorded an EBITDA Margin of 9.5% against 22.4% YoY, which was below its Upside /Downside (%) (7)
expectation as well as consensus estimate, primarily owing to the elevated input costs. The volume High/Low (Rs) 2588/1900
for the quarter stood at 7.56 million tonnes per annum (mntpa), up 10% YoY. ACC’s blended
EBITDA/tonne stood Rs 564, down 59% YoY and it reported blended realization/tonne of Rs 5,911 Market cap (Cr) 40608
against Rs 5,680 up 4% YoY. Cost/tonne increased by 21% YoY to Rs 5.347 against Rs 4,409 in Avg. daily vol. (6m) 537885
Q2CY21 as input costs remained elevated owing to higher power/fuel cost/tonne (up 43%) as well sharesShrs.
as higher raw material cost/tonne (22%) on a YoY basis. No of Shares (Cr) 18.8

Shareholding (%)
 Key Result Highlights
Dec-21 Mar-22 June-22
Capacity Expansion
Promoter 54.53 54.53 54.53
Ametha project to get operational in Q4CY22: The capacity expansion project at Ametha,
Madhya Pradesh (2.7 mtpa Clinker and 1 mtpa grinding, 16.3 MW WHRS plant) progressing well FIIs 13.76 12.75 12.11
and is expected to get operational in Q4CY22. The 2.2 mtpa split grinding units in the state of UP MFs / UTI 8.85 9.23 9.38
are progressing well and are expected to get operational in CY23. Tikariya unit (1.60 mtpa) was
Banks / FIs 0.84 0.96 0.6
commissioned in Feb’22 and the project was executed in 9 months. The company’s upcoming
projects are progressing ahead of schedule, which will take its total capacity to 39.3 mntpa from Others 22.02 22.53 23.38
the current 36.1 mntpa.
Financial & Valuations
Kymore & Jamul WHRS plant work on track: The company’s construction of the WHRS plant
at its units in Kymore (10mw) and Jamul (14 MW) is on track and is expected to be commissioned Y/E Dec (Rs Cr) CY21 CY22E CY23E
in CY22. Furthermore, orders have been placed for the next phase of projects at the Chanda and Net Sales 16,152 17.683 19,795
Wadi plants. The total capacity of WHRS will reach 75 MW and will add to savings in power/fuel EBITDA 2,998 1.768 2,699
costs moving ahead. The company’s study to set up other WHRS plants is also in progress.
Net Profit 1,863 9,90 1,638
Press Release Statement
EPS (Rs.) 97 53 88
Rising global fuel costs and related inflationary impacted Q2CY22: Q2CY22 was impacted
PER (x) 21 42 25
by the rising global fuel costs and related inflationary impacts. The company was able to mitigate
part of this impact through its efficiency project ‘Parvat’. The cost reduction journey will be further EV/EBITDA (x) 10 18 12
accelerated with the commissioning of the waste heat recovery projects in Jamul, Kymore, and P/BV (x) 2.7 2.9 2.7
Ametha plants, taking the share of green power to 15%. ROE (%) 14 7 11
Sustainability continues to be one of key focus areas: ACC is committed to making a tangible
difference in the areas of carbon footprint reduction, protection of natural resources, and enabling Change in Estimates (%)
progress and welfare of communities through various initiatives. CY22E CY23E
Outlook & Valuation Revenue -1 -2
Higher costs severely impacted the company’s operational performance in Q2CY22 and H1CY22. EBITDA -35 -24
This resulted in the company reporting its lowest EBITDA margin over the past several years.
While ACC is well-positioned in its key markets with better pricing and volume growth, we foresee Net profit -41 -28
input costs to remain elevated and start subsiding from Q4CY22. Its capacity expansion plans are
progressing well and it is well-poised to capitalize on the growth momentum in the ensuing period ESG disclosure Score**
by tapping its upcoming and expanded capacity in demand accretive Central India region. This will Environmental Disclosure Score 54
also aid the company in gaining market share which it lost to other larger peers over the years.
Social Disclosure Score 56
Furthermore, with its sharp focus on cost optimization measures under project PARVAT, and
increased government focus on infrastructure, housing, PLI scheme, and commercial Governance Disclosure Score 59
development, we expect the company to register Revenue/EBITDA/APAT CAGR of 13%/5%/9% Total ESG Disclosure Score 56
over CY20-CY23E, driven by volume CAGR of 9% and consistent realization improvement of 3% Source: Bloomberg, Scale: 0.1-100
over CY20-23E. The stock is currently trading at 18x & 12x its CY22E and CY23E EV/EBITDA. **Note: This score measures the amount of ESG data a company reports publicly and
does not measure the company's performance on any data point. All scores are
We value ACC at 11x its CY23E EV/EBITDA, factoring in the higher cost and await margins to based on 2020 disclosures
improve to arrive at a TP of Rs 2,010/share, implying a downside of 7% from the CMP and hence
change its rating from BUY to HOLD Relative performance
225
Key Financials (Consolidated)
175
(Rs Cr) CY21 CY22E CY23E
125
Net Sales 16,152 17.683 19,795
75
EBITDA 2,998 1.768 2,699

Net Profit 1,863 9,90 1,638 25

Jan-20 Aug-20 Apr-21 Nov-21 Jul-22
EPS (Rs) 97 53 88 ACC BSE Sensex
PER (x) 21 42 25

EV/EBITDA (x) 10 18 12 Source: Capitaline, Axis Securities

P/BV (x) 2.7 2.9 2.7

ROE (%) 14 7 11 Uttam Kumar Srimal

Research Analyst
Source: Company, Axis Research email:uttamkumar.srimal@axissecurities.in

Shikha Doshi
Research Analyst
email:shikha.doshi@axissecurities.in

1
Key Result Highlights (Cont)

 Project PARVAT: Project PARVAT helped the company mitigate part of the rising power/fuel cost during the quarter. Strict
cost control measures enabled the reduction in the fixed cost over the previous year.
 Digital Initiatives: ACC is deploying a whole new gamut of digital tools to establish both a superior consumer connect and
technical assistance as well as to enhance the overall consumer experience. The company is implementing various tools
such as Transport Analytics Centre (TAC) to achieve efficiency improvements and has also undertaken various consumer-
centric digitization tools for adding value to customers.
 RMX(Ready Mix Concrete): During the quarter, the company’s RMX volume increased by 44% YoY to 0.83 Mn Sq Mt.
Green Concrete “ECOPact” is now a formidable part of the total Ready mix sales. It has further expanded its ECO-friendly
product portfolio by launching a new climate control concrete insulation system ‘AIRIUM’. During the quarter the company
launched DYNAMax under the ready mix product portfolio. The ready mix business is poised for significant growth owing to
low penetration, rapid urbanization, and a focus on infrastructure development. The company has a strong expansion plan
with a wide range of products and a continued focus on expanding green products and solutions.
 ESG: ESG remains the company’s key focus area and it is determined to bring more greener products into its portfolio and
undertake several other ESG initiatives. During the quarter, blended cement formed 90% of the company's total cement sales
and the clinker factor stood at 58%. The thermal substitution rate stood at 9%.
 Cash Flow: Subdued operating performance and high working capital requirement significantly impacted the H1CY22 cash
flow. During H1CY22, the company reported a negative OCF of Rs.757 cr against a positive OCF of Rs 421 Cr last year.
During the H1CY22, the company spent Rs 1085 cr on ongoing Capex against 343 Cr last year. The cash flow was also
impacted on account of higher dividend payments by the company for CY21. Total cash/cash equivalents stood at Rs 4,516
Cr against Rs 5,689 Cr last year.

2
Story in Charts
Exhibit 1: Volume Trend Exhibit 2: Realization Trend

Volume (mtpa) Blended Realization /t (Rs.)

6000 5911
10.00 5764
7.80 7.70 7.97 7.49 7.71 7.56 56805706 5741
8.00 7.20 6.84 6.57 5800 5642
6.40 6.60 6.50
5600 5513
6.00 4.80 5421544253835385
5400 5306
5206
4.00
5200
2.00 5000
0.00 4800

Q4CY19
Q2CY19

Q3CY19

Q1CY20

Q2CY20

Q3CY20

Q4CY20

Q1CY21

Q2CY21

Q3CY21

Q4CY21

Q1CY22

Q2CY22
Source: Company, Axis Securities,

Exhibit 3: EBITDA Trend Exhibit 4: Trend in EBITDA/Tonne

EBITDA (in Cr) Blended Ebitda/Tonne (Rs.)

1000 1400 1271

860 869
783 1200 1088 10951033 1079 1084
800 671 712
635 1000 870 889 823
557 541 586 525 572 556 694 743 743
600 426 800 564
400 600
400
200 200
0 0

Q3CY20
Q2CY19

Q3CY19

Q4CY19

Q1CY20

Q2CY20

Q3CY20

Q4CY20

Q1CY21

Q2CY21

Q3CY21

Q4CY21

Q1CY22

Q2CY22

Q2CY19

Q3CY19

Q4CY19

Q1CY20

Q2CY20

Q4CY20

Q1CY21

Q2CY21

Q3CY21

Q4CY21

Q1CY22

Q2CY22
Source: Company, Axis Securities,

Exhibit 5: Trend in Cost/Tonne Exhibit 6: CAGR (FY20-FY23)

Cost/t (Rs) 14.0% 12.8% CAGR (CY20-23)

6000 5347
4676464345124417 44094640 4409462248994918 12.0%
5000 4327 4306 9.3% 9.4%
10.0%
4000
3000 8.0%
2000 6.0% 4.6%
1000 4.0%
0 2.0%
Q3CY19

Q4CY21
Q2CY19

Q4CY19
Q1CY20
Q2CY20
Q3CY20
Q4CY20
Q1CY21
Q2CY21
Q3CY21

Q1CY22
Q2CY22

0.0%
Revenue EBITDA PAT Volume

Source: Company, Axis Securities,

3
Exhibit 7: Trend in RM Cost Exhibit 8: Staff Cost

RM Cost/t (Rs) Emp Cost/t (Rs)

1327 400 359 368
1400 1220 1114 11681109 330
10401046 350 299 317 316 324 306
1200 936 950 283 272 250 287
913 300 259
1000 720 734
623 250
800
200
600 150
400 100
200 50
0 0

Q3CY20
Q2CY19

Q3CY19

Q4CY19

Q1CY20

Q2CY20

Q4CY20

Q1CY21

Q2CY21

Q3CY21

Q4CY21

Q1CY22

Q2CY22
Source: Company, Axis Securities, Source: Company, Axis Securities

Exhibit 9: Power & Fuel Cost Exhibit 10: Freight Cost

Power/Fuel Cost/t (Rs) 1600 Freight Cost/t(Rs)

2000 1735 1486
1500 1444
1350 1426 1426
1500 121412001257
11341226 1113 1400 13601345 1359
950 953 969 9781010 13231317 1309
1000 1262 1281
1300 1251
500 1200

0 1100
Q4CY21

Q4CY19
Q2CY19
Q3CY19
Q4CY19
Q1CY20
Q2CY20
Q3CY20
Q4CY20
Q1CY21
Q2CY21
Q3CY21

Q1CY22
Q2CY22

Q2CY19
Q3CY19

Q1CY20
Q2CY20
Q3CY20
Q4CY20
Q1CY21
Q2CY21
Q3CY21
Q4CY21
Q1CY22
Q2CY22
Source: Company, Axis Securities, Source: Company, Axis Securities

Exhibit 11: Other Expenses

Other Exp/t (Rs)

1000 902 950 907
841 810 833 763 791 790
782
800 714 754 741

600
400
200
0
Q2CY19

Q3CY19

Q4CY19

Q1CY20

Q2CY20

Q3CY20

Q4CY20

Q1CY21

Q2CY21

Q3CY21

Q4CY21

Q1CY22

Q2CY22

Source: Company, Axis Securities,

4
Q2CY22 Result Comparative (Rs Cr)

(Rs Cr) 2QCY22 1QCY22 % Chg QoQ 2QCY21 % Chg YoY

Net sales 4468 4427 1% 3,885 15%

Expenditure 4042 3792 7% 3,016 34%

EBITDA 426 635 -33% 869 -51%

Other income 54 58 -8% 46 18%

Interest 15 11 41% 13 11%

Depreciation 165 154 7% 146 12%

PBT 301 529 -43% 755 -60%

Tax 78 136 -43% 189 -59%

PAT 227 396 -43% 569 -60%

EBITDA margin (%) 9.5% 14.3% (480bps) 22.4% (1290 bps)

EPS (Rs) 12.1 21.1 -43% 30.3 -60%

Source: Company, Axis Securities

Volume/ Realization / Cost Analyses (Rs Cr)

(Rs Cr) 2QCY22 1QCY22 % Chg QoQ 2QCY21 % Chg YoY

Volume/mnt 7.56 7.71 -2% 6.84 11%

Realisation/tonne (Rs) 5911 5741 3% 5,680 4%

Cost/tonne (Rs) 5347 4918 9% 4,409 21%

Raw material/tonne (Rs) 1109 1168 -5% 734 51%

Staff Cost/tonne (Rs) 287 250 15% 306 -6%

Power & Fuel/tonne (Rs) 1735 1350 29% 1,214 43%

Freight/tonne (Rs) 1426 1359 5% 1,345 6%

Other Expenses /tonne (Rs) 790 791 0% 810 -2%

EBITDA/tonne (Rs) 564 823 -32% 1,271 -56%

Source: Company, Axis Securities

5
Financials (Consolidated)
Profit & Loss (Rs Cr)
Y/E March CY21 CY22E CY23E
Net sales 16152 17683 19795
Other operating income 0 0 0
Total income 16152 17683 19795

Raw Material 2867 3420 3693

Power & Fuel 3365 4949 5246
Freight &Forwarding 3823 4346 4693
Employee benefit expenses 836 845 896
Other Expenses 2263 2355 2567

EBITDA 2998 1768 2699

Other income 207 235 247

PBIDT 3205 2003 2946

Depreciation 601 643 712
Interest & Fin Chg. 55 53 63
E/o income / (Expense) 55 0 0
Pre-tax profit 2495 1307 2171
Tax provision 643 330 546
RPAT 1851 977 1625
Minority Interests 0 0 0
Associates 12 13 13
APAT after EO item 1863 990 1638
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March CY21 CY22E CY23E
Total assets 21039 21395 22641
Net Block 7995 8244 8533
CWIP 1245 200 200
Investments 131 131 131
Wkg. cap. (excl cash) -142 -303 -300
Cash / Bank balance 7524 7293 8073
Misc. Assets 4286 5830 6003

Capital employed 21039 21395 22641

Equity capital 188 188 188
Reserves 14121 13983 15057
Minority Interests 3 0 0
Borrowings 0 0 0
Def tax Liabilities 216 216 216
Other Liabilities and Provision 6511 7008 7181
Source: Company, Axis Securities

6
Cash Flow (Rs Cr)
Y/E March CY21 CY22E CY23E
Profit before tax 2506 1320 2183
Depriciation 601 643 712
Interest Expenses 55 53 63
Non operating/ EO item -214 -248 -260
Change in W/C 130 161 -3
Income Tax -286 -330 -546
Operating Cash Flow 2792 1599 2150
Capital Expenditure -1175 -1929 -990
Investments 0 0 0
Others 177 1280 247
Investing Cash Flow -998 -649 -742
Borrowings 0 0 0
Interest Expenses -32 -53 -63
Dividend paid -263 -1128 -564
Others 0 0 0
Financing Cash Flow -295 -1181 -627
Change in Cash 1499 -231 780
Opening Cash 5849 7367 7136
Closing Cash 7348 7136 7916
Source: Company, Axis Securities

7
Ratio Analysis (%)
Y/E March CY21 CY22E CY23E
Operational Ratios
Sales growth 17% 9% 12%
OPM 18.6% 10.0% 13.6%
Op. profit growth 27% -41% 53%
COGS / Net sales 62% 72% 69%
Overheads/Net sales 19% 18% 17%
Depreciation / G. block 5.9% 5.3% 5.4%

Efficiency Ratios
Total Asset turnover (x) 1.57 1.45 1.50
Sales/Gross block (x) 1.57 1.45 1.50
Sales/Net block(x) 2.07 2.20 2.38
Working capital/Sales (x) 0.07 0.05 0.05

Valuation Ratios
PER (X) 23.2 42.1 25.6
P/BV (x) 2.95 2.98 2.77
EV/Ebitda (x) 11.03 18.84 12.06
EV/Sales (x) 2.05 1.88 1.64
EV/Tonne $ (x) 132 123 114

Return Ratios
ROE 13.9 7.0 11.2
ROCE 18.3 9.1 14.5
ROIC 38.9 17.7 30.4

Leverage Ratios
Debt / equity (x) 0.00 0.00 0.00
Net debt/ Equity (x) -0.53 -0.51 -0.53
Interest Coverage ratio (x) 47.68 25.46 35.27
Net debt/ Ebitda (x) -2.51 -4.12 -2.99

Cash Flow Ratios

OCF/Sales 0.18 0.09 0.11
OCF/Ebitda 0.95 0.90 0.80
OCF/Capital Employed 0.19 0.11 0.13
FCF/Sales 0.10 -0.02 0.06

Payout ratio (Div/NP) 15 112 34

AEPS (Rs.) 97 53 88
AEPS Growth 44.1 -44.9 64.6
CEPS (Rs.) 132 88 126
DPS (Rs.) 15 60 30
Source: Company, Axis Securities

8
 ACC Ltd Price Chart and Recommendation History

(Rs)

Date Reco TP Research

19-Feb-21 BUY 2,100 Initiating Coverage
01-Apr-21 BUY 2,100 Top Picks
20-Apr-21 BUY 2,230 Result Update
04-May-21 BUY 2,110 Pick of the week
03-May-21 BUY 2,230 Top Picks
24-May-21 BUY 2,230 AAA
01-Jun-21 BUY 2,230 Top Picks
19-Jul-21 BUY 2,490 Result Update
19-Oct-21 BUY 2,710 Result Update
26-Oct-21 BUY 2,570 Diwali Picks
14-Feb-22 BUY 2,620 Result Update
20-Apr-22 BUY 2,300 Result Update
11-May-22 BUY 2,500 Result Update
16-May-22 BUY 2,680 Sector Update
15-Jul-22 HOLD 2,010 Result Update
Source: Axis Securities

9
 About the analyst

Analyst: Uttam Kumar Srimal

Email: uttamkumar.srimal@axissecurities.in

Sector: Cement/Infra

Analyst Bio: Uttam K Srimal is PGDBF from NMIMS with more than 20 years of experience in Equity
Market/Research.

About the analyst

Analyst: Shikha Doshi

Email: shikha.doshi@axissecurities.in

Sector: Cement/Infra

Analyst Bio: Shikha Doshi is Master of Science in Finance from Illinois Institute of Technology, Chicago,
currently handling Cement/infra sector.

Disclosures:
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is
a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries
engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are
available on www.axisbank.com.
2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association
of Mutual Funds of India (AMFI) for distribution of financial products and also registered with IRDA as a corporate agent for insurance business activity.
3. ASL has no material adverse disciplinary history as on the date of publication of this report.
4. I/We, Uttam Srimal, (MBA-Finance) and Shikha Doshi (Master of Science in Finance), author/s and the name/s subscribed to this report, hereby certify that
all of the views expressed in this research report accurately reflect my/its views about the subject issuer(s) or securities. I/We (Research Analyst) also certify
that no part of my/its compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/its
relative or ASL does not have any financial interest in the subject company. Also I/we or my/its relative or ASL or its Associates may have beneficial ownership
of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL
are engaged in various financial service businesses, it might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report. I/we or my/its relative or ASL or its associate does not have any material conflict of interest. I/we have not served
as director / officer, etc. in the subject company in the last 12-month period.Any holding in stock – No
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This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered
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10
Disclaimer:

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11