Hold ACC; target of Rs 1724: Arihant Capital
Arihant Capital recommended hold rating on ACC with a target price of Rs 1724 in its research report dated October 21, 2020.
Despite Covid-19 headwinds, Indian economy is witnessing early signs of recovery. In ACC, this recovery has been reflected in Q3 CY20 results where volumes and sales have bounced back to prior year levels. Cement sales volume increased by 1% to 6.49 million tonnes in Q3CY20 as compared to 6.44 million tonnes in Q3CY19. However, Net Sales during the quarter remained flat at Rs 3,537 cr compared to Rs 3,528 cr last year. Realization grew by 3% YOY in Q3CY20 due to lower raw material cost. EBIDTA in Q3CY20 stood at Rs 671 cr as compared to 557 cr in Q3CY19 showing an increase of 20.5% YOY. EBIDTA margin expanded by 318 bps YoY to 19%in Q3CY20. Margin expansion was primarily driven by cost reduction plans and operational efficiency. Operational efficiency and cost reduction plans have helped in reducing operating cost per ton for cement. Increase in Operating profit has also helped the bottom line to grow by 20% YoY to Rs 364 cr in Q3CY20. and PAT margin has expanded by 171 bps YoY to 10.3% in Q3CY20.
At CMP of Rs 1579 the stock is trading at a EV/EBIDTA multiple of 10.4x to its CY19 EBIDTA of Rs 2413 cr. Considering pickup in demand for cement , operational efficiency maintained by the company and debt free status of the company, we value the stock at EV/EBIDTA multiple 16.5x to its CY21E EBIDTA of Rs 2287 cr to arrive at a target price of Rs 1724 and maintain Hold rating on the stock.