Citigroup keeps ACC at Sell with a INR996 price target, based on EV/ton, after the company posts lower-than-expected 3Q adjusted profit after tax of INR1.2bn, compared with the house’s forecast of INR1.3bn. The house says valuations appear to price in the positives, but not the weak near-term pricing and earnings outlook and cost pressures.
"While cement prices have been rising in recent weeks, we expect a correction in the coming months as demand growth has been slow and there is adequate supply and a long tail of about 30 cement companies," says the house; it adds, costs have been an issue for the industry and ACC’s per ton costs rose 24%-30% on-year for key heads such as raw materials, coal and freight in 3Q. "Cost pressures are likely to continue in the case of coal and raw materials such as fly ash and slag.
Also, additional volumes have likely resulted in longer lead distances and hence higher per ton freight costs," says the house.