ACC: Unlocking value - 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: Unlocking value

Apr 12, 2002

ACC has turned out to be one of the better performers in FY02, where its cement dispatches grew at an average of 15%. The company has successfully leveraged its strategic alliance with Gujarat Ambuja (GACL) in order to achieve higher operational efficiency and better realisations. This at a time most other cement producers have been troubled by poor realisations. ACC with its broad reach and huge capacity has been in a better position to keep a check on the fluctuating realisations.

After a dismal FY00 when ACC posted a net loss of Rs 589 m, the company turned around to record a profit of Rs 475 m in FY01. In FY02 too, the company has posted encouraging results for the first three quarters. The company has registered nearly 8% topline growth in the first nine months of FY02 compared to the same period in FY01. Efficient operation of the cement plants and labour rightsizing measures have ensured improved operating margins. From a low of 6.2% in FY00, the operating margins during 9mFY02 stand at 15.1%. The net profits have also improved and stand at Rs 778 m during this period.

FY02 (in Rs m) Q1 Q2 Q3 Q4E
Sales 8,320 7,139 8,140 9,361
Operating Profit Margins 18% 18% 14% 14%
Net Profits 439 170 169 187

What is even more encouraging is that the strategic alliance with GACL has helped ACC become much more proactive in terms of increasing operational efficiencies. Increased focus towards high demand markets in the northern and the eastern regions of the country has ensured higher realisations. Many measures have been initiated in order to bring the operating margins to global standards. Captive plants are being set up in order to reduce reliance on state electricity boards and to reduce the costs incurred on power. Rationalisation of raw material usage has also been initiated in order to reduce costs on this front.

Apart from the above, ACC is also focusing on improving efficiencies in its cement production. The company’s new 2.6 m tonnes Wadi cement plant is highly efficient, manned by only 150 personnel. ACC is looking to expand capacity of this plant to 5 m tonnes in the next three years.

The reduction in the average age of its plants from 30 to 18 years is another sign of improving efficiency. ACC is planning to exit from its remaining non-core businesses (consultancy, refractory), a move which will strengthen its core competence and efficiencies.

However, it needs to be pointed out that ACC’s strategy is not without pitfalls. ACC is planning to expand its capacities in the next three years. Competition is also expanding capacities. But all this capacity expansions are in a market where supply is greater than demand currently. In this scenario, ACC might find it tough to maintain its higher realisations going forward. One must remember that ACC is most sensitive to changes in cement prices. A Re 1 increase in the price of cement leads to an increase of Rs 180 m in revenues and vice versa.

ACC’s potential for improvement is considerable as its current operating margins are nowhere near the best in the industry. GACL and Madras Cement have operating margins in the range of 28-32%. All in all, ACC has still a lot of potential to strengthen its position in the cement industry. And as it achieves each milestone, valuations are likely to move in tandem.

The stock is currently trading at Rs 150 implying a price to earnings multiple of 25x based on annualised 9mFY02 earnings.

Equitymaster requests your view! Post a comment on "ACC: Unlocking value". Click here!

  

More Views on News

ACC Announces Quarterly Results (2QFY22); Net Profit Up 23.4% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, ACC has posted a net profit of Rs 4 bn (up 23.4% YoY). Sales on the other hand came in at Rs 37 bn (up 6.0% YoY). Read on for a complete analysis of ACC 's quarterly results.

ACC 2019-20 Annual Report Analysis (Annual Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

Here's an analysis of the annual report of ACC for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of ACC . Also includes updates on the valuation of ACC .

ACC Posts Two-Fold Rise in Net Profit Despite Covid-19 Disruptions (Views On News)

Jul 20, 2021

Shares of ACC logs record high after reporting strong operational performance for the quarter ended June 2021.

Cement Stocks on a Roll: JK Lakshmi & Ambuja Scale New High (Views On News)

Jul 6, 2021

Cement stocks rally owing to firm cement prices and volume growth expectation.

Nuvoco Vistas Makes a Lackluster Debut. Stock Lists at 17% Discount (Views On News)

Aug 23, 2021

Nuvoco Vistas witnessed a tepid listing on the bourses despite strong outlook for the cement sector.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

ACC SHARE PRICE


Dec 7, 2021 03:13 PM

TRACK ACC

ACC - CHINA NAT. BLDG. COMPARISON

COMPARE ACC WITH

MARKET STATS