Hold ACC over 3-4 quarters

HDFC Sec | May 29, 2018, 11:38 a.m.

Although we have seen the volume growth being sustained, it has come at the cost of realisation.  On  a  yoy basis, the pricing scenario remains  soft, as the all India  average price is down by 8% for the first two weeks of April. South and North prices are down by 15% and 14% respectively. With the companies vying for market share  amid sluggish demand, it would be difficult to pass on the increase in freight costs or to  sustain any  significant price  increase. The impending ban on petcoke by the Government would further compound problems for the cement companies  like ACC.  ACC is taking too long to improve its profitability per ton which could now get further postponed as the merger with Ambuja Cement has been put on hold. In the process the rerating of its valuation could take longer. We have revised  the estimates  downwards  for CY18  and CY19 and ascribe a lower valuation multiple to the stock.  Existing investors who have  long term view can continue to hold the stock for sequential targets of Rs 1445 ($110 CY19E EV/Ton  and 18.3x CY19E EPS)  and Rs 1510 ($115 CY19E EV/Ton  and 19.2x CY19E EPS)  over 3-4 quarters. 

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