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ACC profitability at 6-year low hits shares, some analysts say 'good buying opportunity'

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ACC profitability at 6-year low hits shares, some analysts say 'good buying opportunity'

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ACC stock price: Cement maker ACC's profitability was at a six-year low in the April-June quarter due to a moderation in demand and elevated input costs of power, fuel, pet coke and coal prices. Other financial parameters also came in lower-than-expected.

Cement maker ACC's profitability was at a six-year low in the April-June quarter due to a moderation in demand and elevated input costs of power, fuel, pet coke and coal prices. Other financial parameters also came in lower-than-expected.
As expected, the day after the results were announced, shares were trading in the negative territory, down as much as 2 percent. At 10:56 am, shares of the cement manufacturer were down 0.6 percent at Rs 2,143 on the BSE.
While most brokerage firms — including Morgan Stanley, UBS, Goldman Sachs, and CLSA —  gave a dull commentary, Credit Suisse said that ACC's long-term outlook looked intact amid energy cost headwinds in the near term.
Brokerage FirmRatingTarget Price
Goldman SachsNeutralRs 2,100
Morgan StanleyUnderweightRs 2,050
Credit SuisseNeutralRs 2,000
CLSAUnderperformRs 2,300
CitiBuyRs 2,460
UBSBuyRs 2,600
Credit Suisse has reduced its EBITDA per tonne estimate to Rs 750 in 2022 and has raised the estimate to Rs 970 per tonne in 2023 and Rs 1,000 in 2024.
Citi said the June quarter was below estimates and costs appear to be at their peak. Citi expected the industry pricing trend to remain muted but said valuations could improve given potential synergies that make it an attractive bottom-up play.
According to Rajesh Ravi, institutional research analyst of cement at HDFC Securities, valuations across the cement pack would remain depressed for two to three months and would offer good opportunities hence they are maintaining a buy rating.
"Our target price is Rs 2,380, valuing ACC at 8 times EBITDA. The stock would be trading at least 10-10.5 times EV/EBITDA and is offering a good buying opportunity,” he said, adding he felt the valuation is comfortable given ACC is the second largest company among the top three today on the Street with good volume visibility.
Here's a look at how the company performed from April to June:
Morgan Stanley said a lower than consensus EBITDA was driven by weaker-than-expected costs. Goldman Sachs said volume and EBITDA growth would likely lag that of peers because it sees competition in eastern India to remain elevated and as major capacity expansions are still 9-12 months away.
CLSA pointed out in a note that the cement maker's free cash flow in the first half was negative and added that clarity on earnings would be key for the stock's rerating.
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