ACC cements a new relationship - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

ACC cements a new relationship

Jan 1, 2000

Stock markets were delighted. Corporate India responded with surprise. Analysts were dismayed. French cement major Lafarge was shocked. All these feelings were generated by the deal of the year. Gujarat Ambuja Cements Limited (GACL) (capacity 7 million tonnes) had entered into an agreement with the Tata Group to purchase a 7.2% stake in cement major Associated Cement Companies (ACC) (capacity 11.6 million tonnes) at a cost of Rs 370 per share.

The ACC stock had been trading at Rs 240 per share prior to the announcement. The Tata Group`s holding in ACC prior to the sale was pegged at 14.4%. The Group has retained the option to sell the remaining 7.2% stake to GACL. Needless to say, shareholders of both the companies greeted the deal with enthusiasm.

The stock markets drove up the stock prices of the two companies due to the synergies and the possible gains in efficiency at ACC. Corporate India`s surprise was rooted in the fact that GACL had beaten French cement major Lafarge in picking up the stake. The analysts, however, were cautious in view of the high price having been paid by GACL.

ACC is one of India`s leading cement producers. The company belongs to a select group of cement companies that have a national presence. This is essential in view of the large variation in demand and price in various markets across India. Despite its large size and national presence, ACC has been one of the worst affected by the recent slowdown in the India economy. A comparison of EBITDA margins (earnings before interest, tax, depreciation and amortisations expressed as a percentage of sales) of select companies clearly underscores this fact.

The reasons for ACC`s substandard margins are not far to seek. Low employee productivity, relatively small size of plants and lack of spending on upgrading technology (5% of its turnover is contributed by plants using the outdated wet process) has crippled the company`s productivity.

(Rs m) 1HFY99 1HFY00
Gross Sales 11,192 13,282
Net Income 211 88
Realization per tonne (Rs) 2,633 2,631
Cost per tonne (Rs) 2,374 2,408
Profitability per tonne (Rs) 259 222

In light of its poor track record in terms of efficiency of operations, the GACL deal should come as a welcome relief for the cement giant. ACC will get a strategic investor in GACL that is reputed for the efficiency of its operations. The company would benefit from the managerial and technical inputs it receives from its new `investor`. The scope for improvement in operational efficiencies is tremendous and this is borne out by the large difference in EBITDA margins.

Not that ACC has yet to respond to its dismal performance. It has earlier initiated measures to reduce costs by rationalising work force and hiving off its power plants into a separate company. The company has recently launched a four pronged strategy to improve efficiency. These include -

  • Identifying the unviable manufacturing units
  • Selling off the wet process cement manufacturing units
  • Adding fresh capacity to the viable plants
  • Hiving off the research and consultancy directorate (a research centre on cement).

ACC had unveiled this strategy only a few days before the deal between the Tata Group and GACL took place. In light of this development the strategy could face modifications or be dropped altogether. Nevertheless, ACC`s management seems to have realised that operational efficiency is as essential as size in order to dominate the sector. This change of attitude on the part of the management would definitely benefit the company.

The ACC-GACL-Tata deal has the potential to create India`s largest and most efficient cement company - one with a nationwide presence.

The biggest hurdle to the deal, however, would be the cultural differences that exist between the two companies. GACL is generally known as a more aggressive and proactive player as compared to the reactionary nature of ACC.

Equitymaster requests your view! Post a comment on "ACC cements a new relationship". Click here!

  

More Views on News

ACC Announces Quarterly Results (2QFY21); Net Profit Up 21.3% (Quarterly Result Update)

Oct 22, 2020 | Updated on Oct 22, 2020

For the quarter ended September 2020, ACC has posted a net profit of Rs 4 bn (up 21.3% YoY). Sales on the other hand came in at Rs 35 bn (up 0.3% YoY). Read on for a complete analysis of ACC 's quarterly results.

ACC 2018-19 Annual Report Analysis (Annual Result Update)

Oct 20, 2020 | Updated on Oct 20, 2020

Here's an analysis of the annual report of ACC for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of ACC . Also includes updates on the valuation of ACC .

ACC Announces Quarterly Results (4QFY20); Net Profit Down 6.4% (Quarterly Result Update)

Apr 24, 2020 | Updated on Apr 24, 2020

For the quarter ended March 2020, ACC has posted a net profit of Rs 3 bn (down 6.4% YoY). Sales on the other hand came in at Rs 35 bn (down 10.7% YoY). Read on for a complete analysis of ACC 's quarterly results.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

A Stock with 700% Return Potential Comes with Additional Payoffs (Profit Hunter)

Apr 15, 2021

Narayana Murthy was one of the first unicorn founders to get the backing of this entity...

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

A Unique Sector for Short-Term Profits (Fast Profits Daily)

Apr 12, 2021

This ignored sector could deliver big short-term profits.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

ACC SHARE PRICE


Apr 19, 2021 09:49 AM

TRACK ACC

ACC - SAURASHTRA CEMENT COMPARISON

COMPARE ACC WITH

MARKET STATS