ACC: Will it outperform? - Views on News from Equitymaster

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

  • MyStocks


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

ACC: Will it outperform?

Sep 20, 2004

As compared to the market leader, Gujarat Ambuja, ACC has under performed in the stock market over the last one year. We take a review of the company's performance in the recent quarter and whether the much expected 'faster margin expansion' is likely to happen in FY05 and beyond. On a consolidated basis, ACC accounted for almost 12% of industry capacity in FY04 and an estimated 14% of industry production. It is particularly strong in the northern and the eastern regions with a capacity share of 16% and 8% respectively in the said regions. Though the company's benefits from a well-spread presence, its operating margins have been below its peers (especially Gujarat Ambuja). Given its large capacity and regional diversification, during periods when cement prices are rising, it is expected that ACC's margins will rise at a faster rate than its peers. But it has not been the case on a consistent basis.

Now that the average cement prices are expected to increase by around 5% to 6% in FY05 and the restructuring process is reaching its final phase, what does the future hold for ACC?

On the demand side, fueled by an outlay of Rs 400 bn on infrastructure projects and housing sector finance, the cement industry is expected to achieve an annual growth rate of 8.0% to 10.0% in the next 2 to 3 years. While growth in the medium-term is likely to arise primarily from housing sector growth, in the long-term, demand for cement from infrastructure spending will gather pace. As a leading player, we expect ACC to outpace industry growth rate in the next two to three years. As a matter of fact, there is a clear visibility on the demand side for the cement sector as a whole and the company in particular.

At the same time, we do not expect operating margins of the company to outpace its peers purely because of unfavorable demand-supply situation in the southern market. It is estimated that there is excess supply in the southern market to the tune of 40%. Compared to the western and northern markets, the demand-supply imbalance is unlikely to turn favorable in the next two to three years.

Though benefits of setting up of captive power facilities in select southern plants will be reflected in ACC's margins in FY05, the modernisation of the Chaibasa plant will reflect in operating margins in FY06. The company is setting up a 15 MW captive power plant in Chaibasa. This along with the modernisation programme will cost Rs 2.9 bn. Keeping in mind the sharp rise in fuel cost and increase in transportation charges in the recent past, we expect operating margins to expand only marginally in FY05. As a matter of fact, margins of Gujarat Ambuja and Grasim will continue to remain superior.

The stock currently trades at Rs 273 implying a price to earnings multiple of 26 times our expected FY05 earnings. Though the balance sheet of the company looks much healthier after the FCCB issue and there exists the scope of margin expansion beyond FY05, valuations are on the higher side on a relative basis and therefore, the under performance of the stock is not a surprise.

Equitymaster requests your view! Post a comment on "ACC: Will it outperform?". Click here!


More Views on News

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.

ACC Announces Quarterly Results (3QFY20); Net Profit Down 63.2% (Quarterly Result Update)

Feb 10, 2020 | Updated on Feb 10, 2020

For the quarter ended December 2019, ACC has posted a net profit of Rs 3 bn (down 63.2% YoY). Sales on the other hand came in at Rs 41 bn (up 4.2% YoY). Read on for a complete analysis of ACC 's quarterly results.

ACC LTD 2017-18 Annual Report Analysis (Annual Result Update)

Mar 5, 2019 | Updated on Mar 5, 2019

Here's an analysis of the annual report of ACC LTD for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of ACC LTD. Also includes updates on the valuation of ACC LTD.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 29, 2020 (Close)