The rights issue of the Associated Cement Companies has been over subscribed by approximately 10-15%. The company had planned to mobilise Rs 1.67 bn via the rights issue. The company is raising money to repay its debt and also to embark on an expansion of capacity.
ACC, India's second largest cement producer, has an aggregate cement capacity of 11.3 mn tpa.
The reduction in debt will lift the bottomline to the extent the interest cost is reduced. This will improve the leverage ratios of the company and help lower the overall cost of debt.
In view of the rising demand scenario, the company is also firming up its plans to set up a unit at Wadi (Maharashtra). An expansion in capacity will help the company in maintaining market share in a fast growing market. Moreover, an expansion will result in economies of scope thus giving the company a competitive advantage over its peers with smaller capacities.
The stock has been rated as a 'BUY' on account of the strong recovery in demand and consequently the prices of cement. Moreover, the company's initiatives in controlling costs and increasing efficiency is expected to drive earnings growth.
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