Nomura has maintained its Reduce rating on ACC and cut its target price by 8% to ₹1,150 after the cement maker reported weaker-than-expected June quarter earnings. In a note dated July 29, the brokerage stated that "ACC continued to deliver a disappointing set of results in 1QFY27, reinforcing our view that structural challenges remain despite management's ongoing turnaround initiatives." The target price is based on 5.5x one-year-forward EV/EBITDA multiple, while the stock currently trades at 8.2x one-year-forward EV/EBITDA. Nomura does not view ACC as the preferred vehicle of expansion for Adani Group.
The company reported adjusted EBITDA of ₹4.34 billion, down 44% year-on-year, while adjusted profit after tax stood at ₹1.72 billion, a decline of 55% from a year ago. As reported by Nomura, "1QFY27 adjusted EBITDA of ₹4.34 billion missed our and Bloomberg consensus estimates by 24% and 30%, respectively." The brokerage noted that "Blended EBITDA/t of ₹434/t, was down ₹120/t q-q, vs our estimate of flat q-q growth." Nomura has reduced its FY27 EBITDA estimate by 20% as it expects lower volume growth and higher costs due to external headwinds, while leaving FY28 and FY29 EBITDA estimates broadly unchanged at ₹33 billion and ₹36 billion respectively.
Cement volumes declined 6% year-on-year to 10 million tonnes, broadly in line with Nomura's expectations. However, blended realisations fell 10% quarter-on-quarter to ₹5,766 per tonne and were 12% below the brokerage's estimate. According to Nomura, this pricing pressure significantly impacted the company's profitability during the quarter. Looking ahead, the brokerage expects "flattish quarter-on-quarter cement realizations in 2QFY27F and model in 3% year-on-year growth of cementitious volumes."
On the cost front, Nomura reported that combined raw material and power & fuel cost per tonne came in 10% below its estimate and increased 4% year-on-year. Overall operating cost per tonne rose 2% year-on-year but was 10% below the brokerage's estimate. Management highlighted clinker inventory of one month and coal inventory of three months for the group, which Nomura believes should support near-term costs and keep raw material and power & fuel costs per tonne broadly flat sequentially. "As a result, we expect EBITDA per tonne to increase around ₹40 per tonne quarter-on-quarter to around ₹465 per tonne in 2QFY27F," the brokerage said. Nomura's earnings call is scheduled for 4:30 pm IST on July 28.
The brokerage's downward revision reflects persistent structural challenges despite the company's turnaround efforts. Nomura expects only a modest recovery in profitability during the September quarter, with the company's current valuation metrics suggesting the stock is trading at a premium to the brokerage's target multiple. The stock's current trading level of 8.2x one-year-forward EV/EBITDA continues to reflect investor concerns about near-term earnings visibility in the cement sector, with the revised target price of ₹1,150 reflecting the updated assessment of ACC's growth prospects.
