ACC earnings miss reflects weak cement volumes and intensifying margin pressure

Investment View and Near-Term Outlook

Motilal Oswal Financial Services retains a Neutral rating on ACC and characterises the near-term environment as challenging because of soft demand, weak volumes, lower realisations and elevated costs. The broker believes ACC's profitability will remain under pressure, notwithstanding a constructive long-term sector outlook.

For FY26-FY28, Motilal Oswal forecasts revenue, EBITDA and adjusted PAT compound annual growth rates of 3 per cent, 4 per cent and 9 per cent respectively. Cement volume CAGR is expected to remain muted at about 2 per cent.

ACC's target price of Rs 1,270 is based on 7 times FY28E EV/EBITDA. The stock was trading at 9 times FY27E and 7 times FY28E EV/EBITDA, which the broker considers fair.

Q1 FY27 Performance Misses Estimates

ACC's Q1 FY27 performance was below Motilal Oswal's estimates. Revenue declined 5 per cent year-on-year to Rs 5,770 crore, EBITDA fell 44 per cent to Rs 430 crore and adjusted PAT decreased 57 per cent to Rs 170 crore.

Ready-mix concrete revenue rose 20 per cent year-on-year to Rs 500 crore.

Margin Pressure and Cost Inflation

Margins were the central weakness in Q1 FY27. Operating margin fell 5.2 percentage points year-on-year to 7.5 per cent, which was 2.9 percentage points below Motilal Oswal's expectation. EBITDA per tonne declined 40 per cent year-on-year to Rs 404, against the broker's estimate of Rs 576.

Higher MSA-related finished-goods purchase costs, fuel costs and packaging costs weighed on profitability. Cash and cash equivalents stood at Rs 375 crore at the end of June 2026, compared with Rs 480 crore at the end of March 2026.

Management Outlook and Operating Initiatives

Management indicated that industry demand growth could be soft at about 5 per cent in FY27. It expects peak fuel costs and seasonally weak Q2 FY27 conditions to pressure profitability, while seasonality and geopolitical uncertainty could affect near-term growth.

Management's mitigation priorities include:

• Fuel-mix optimisation.
• Increasing the share of renewable energy.
• Improving logistics efficiency.
• Focusing on higher-margin markets.

Green power represented 31 per cent of energy use in Q1 FY27, compared with 26 per cent in Q1 FY26. Premium products represented 44 per cent of sales, versus 41 per cent a year earlier.

Capacity Expansion and Amalgamation

The trial run has begun at the 2.4 million tonnes per annum Salai Banwa grinding unit in Uttar Pradesh. The 1.0 million tonnes per annum Kalamboli, Maharashtra expansion is expected in Q2 FY28.

SEBI issued a no-objection certificate for the proposed amalgamation of ACC with ACEM on June 4, 2026. An NCLT application was filed on June 29, 2026, with completion expected during FY27.

Estimates and Valuation

Following the weak quarter, Motilal Oswal reduced its FY27E and FY28E EBITDA estimates by about 10 per cent and 7 per cent respectively, primarily because of lower realisations and cost pressure.

Key Risks and Potential Supports

Key downside factors identified by Motilal Oswal are persistently weak demand, lower realisations and elevated fuel, finished-goods purchase and packaging costs.

Cost optimisation, greater renewable-power usage, logistics gains and a higher-margin product and market mix could support the outlook.