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Cement major ACC Ltd reported a stellar operating performance in the June quarter, sending its stock 7% higher on Tuesday.

Higher-than-expected realizations and tight cost-control measures were among the key positive takeaways for investors in this stock. Average realization per tonne rose around 7.5% on a sequential basis, beating expectations of around 5% growth. The outperformance on the realizations front was aided by high cement prices in ACC’s key markets of north and central India, higher sale of premium products and lower discount. Favourable fuel mix, efficient logistics and various cost-efficiency measures under project Parvat helped contain a steep increase in operating costs.

ACC follows the calendar year as its financial year
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ACC follows the calendar year as its financial year

Consequently, ACC’s Ebitda of 875 crore for Q2CY21 exceeded Bloomberg’s analysts’ consensus estimate of 720 crore. Ebitda is short for earnings before interest, tax, depreciation and amortization. ACC follows the calendar year as its financial year. On a per-tonne basis, Ebitda was at around 1,280 per tonne, which according to analysts, is the highest in a decade. Analysts at Jefferies India Pvt. Ltd said ACC’s Ebitda on a two-year CAGR basis was up 6%. CAGR stands for compounded annual growth rate. As far as volumes are concerned, it grew by 43% year-on-year (y-o-y) to 6.84 million tonnes aided by a favourable base. However, it fell around 14% sequentially.

Analysts said the sequential fall in volumes despite the second wave of covid and a lean season is lower than feared earlier. The robust earnings performance in a seasonally weak quarter bodes well for its valuations.

The ACC stock is trading at a one-year forward EV/Ebitda of around 10 times. EV stands for enterprise value. Peers Shree Cements Ltd and UltraTech Cement Ltd are trading at a valuation multiple of 16 times and 13 times, respectively, shows Bloomberg data. “ACC’s valuation gap versus peers has widened by around 25% in the last three-four months, and the Q2 beat should help close some of the gap," said analysts at Emkay Global Financial Services Ltd.

ACC has been a laggard among other pan-India cement makers given its capacity constraints. The firm has commenced the capacity expansion project at its Ametha unit in Madhya Pradesh. Its waste heat recovery projects at Jamul and Kymore are on track and are likely to be commissioned by Q2CY22. Analysts are hopeful that the overhang of capacity constraints will soon be behind the company.

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