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ACC: Aggressive initiatives - Views on News from Equitymaster
 
 
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  • Jun 15, 2002

    ACC: Aggressive initiatives

    ACC the largest cement producer in India has undertaken aggressive expansion and restructuring plans in order to improve efficiency and profitability. The recent moves seem to be a concerted effort by the company to catch up with its domestic peers like Gujarat Ambuja and Madras Cement on the efficiency front. Restructuring efforts range from capacity additions in its cement plants to cutting capacity at its refractory production.

    With a view that the cement demand in the country would show good growth rates going forward. ACC had undertaken a capacity expansion exercise in FY02, which included setting up of the 2.6m tonne Wadi plant. In the current year also the company plans to spend Rs 1.2 bn towards capacity expansion which will raise total cement capacity from existing 16 m tonnes to 17.3 m tonnes. The rational towards aggressive capacity additions over the last 3-4 years seems to be to create economies of scale and to extend its reach throughout the country. Large capacities have helped the company to considerably increase its dispatches in the current year.

    Growth in Dispatches (YoY)
    FY03 April May
    ACC 29.0 18.0
    Gujarat Ambuja 3.0 6.0
    Grasim 25.0 6.4
    L&T 12.6 1.8

    ACC has already turned around its Ready Mix Concrete (RMC) business. The Rs 900 m RMC division was incurring losses from the past two years. The company has decided to concentrate on the existing capacities and has shelved its capacity expansion plans. High sales tax imposed by state governments have made the business unremunerative. The turnaround has been mainly the result of better demand and firm prices.

    ACC has also initiated steps to prune its refractory business in order to make the operation profitable and efficient. The company has already closed down its Madhya Pradesh plant due to inefficiency. The company has stated that it plans to concentrate on core products and market penetration instead of diversification. Low utilisation levels in the industry (nearly 50%) may also be a major focus for the company. ACC is the largest producer of refractory in the country. With a good growth in the iron and steel industry (major consumers of refractory) forecasted the refractory industry is likely to see good times ahead.

    Apart form these measures the company has also initiated steps to improve the efficiency of its cement units. ACC has been reducing the utilisation levels at its old Wadi plant in order to divert production to the new Wadi plant which is much more efficient and enjoys sales tax exemption. Utilisation levels at the new Wadi plant have been increasing steadily. The company has also allocated funds to complete the installation of three captive power plants in the current year. This move will reduce reliance of ACC on state electricity boards thereby reducing the overall cost of power consumed.

    ACCís alliance with Gujarat Ambuja has helped the company immensely in terms of operational efficiency. The full impact of the alliance has started showing since FY02. The companyís operating margins have been steadily improving over the last two years. While the margins have improved they are still lower than industry leaders like Gujarat Ambuja and Madras Cement. The company has also initiated steps to divest from its non-core businesses. The most recent move was the selling of its stake in Tata Industries. The divestment will further release cash for the company, which can be used for further restructuring.

    The company has reported encouraging results for FY02. The companyís initiatives in the past year have had a positive impact on its efficiency and profitability. Going forward the company looks attractive, as it is likely to improve its margins further by concentrating on core products and businesses. All the current initiatives indicate the managementís seriousness and commitment to be the best in the industry.

     

     

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