Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ACC: Sensible acquisition... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 31, 2003

    ACC: Sensible acquisition...

    Earlier this year, when Grasim acquired L&T’s cement division (Cemco), industry watchers were visibly thrilled as they felt that the move would bring in much needed consolidation for the industry. However, they also opined that the purpose of consolidation would have been better served had Grasim acquired few smaller companies rather than Cemco, which is the largest cement company in the country. What lends credence to the industry watchers’ remarks is the table given below.

    Capacity control...
      Capacity (m tonnes)
    Industry 138
    Grasim+Cemco 31.0
    ACC 17.1
    Gujarat Ambuja 12.5
    India Cements 9.0
    Madras Cements 6.0
    Century Textiles 5.0
    Lafarge 4.5
    Total 85.1
    Total (% of industry) 62%

    Indian cement industry is pretty consolidated at the top with about 7 players accounting for 62% of the industry capacity. However, what poses a problem is the remaining 38% of the capacity (53 m tonnes), which is shared by around 40 odd players. This leads us to believe that the average capacity of each of these players stands at a little above 1 m tonnes, a far cry from what an ideal cement capacity should be (2 MT). Therefore, given this industry situation where even the bigger players are finding the going tough, smaller players will either be forced to shut down or will be snapped up by bigger players.

    ACC’s recent acquisition of the IDCOL’s (Industry Development Corporation Of Orissa Ltd) ailing cement plant IDCOL Cement Ltd (ICL), is therefore symptomatic of the trend that is likely to be witnessed in the times to come. Let us try and analyse the current deal.

    ACC, the second largest cement manufacturer in the country, has bought over whole 86.8% stake of IDCOL at Rs 7.67 per share and has paid an additional Rs 56 m towards unsecured loans of IDCOL resulting in a total outgo Rs 1.8 bn. ICL has a total cement capacity of 1 m tonnes and is located in the state of Orissa.

    Despite running at more than 80% of its capacity utilisation, ICL has been posting losses over the years (accumulated losses of around Rs 1.5 bn so far). ACC hopes to turn around the company in two years time and is also planning to install a 15 MW captive power plant so that the plant is self sufficient in energy. Besides, the plant is situated in Orissa, which surprisingly is a deficit market and has to ship around 1m tonne of cement from outside. The demand in the state grew at a healthy 18% in FY03. ACC is hoping to capitalize on these favorable factors and is planning to increase the clinkering capacity by around 35% and the cement capacity by around 1 m tonne.

    Considering that a new plant of 1 m tonne needs funds to the tune of Rs 3 bn, ACC seems to have struck a good deal. Also, given the company’s track record in turning around a sick company (ACC successfully turned around Damodar Cement and Slag Ltd), it should be able to bring ICL back to profits and help it contribute positively to ACC’s profits.

    Unlike company’s previous digressions, where it had put money into unrelated businesses such as International Ferrites and Bridgestone ACC, the current acquisition fits well into the company’s core business of manufacturing cement. ACC has also done industry a favour by not going in for a greenfield expansion. The greenfield expansion would have added to the existing surplus capacity in the country and would have further distorted the demand supply scenario.

    ACC is currently trading at Rs 244 implying a P/E of 29x annualised 1HFY04 earnings. Although the company has a pan India presence and boasts of one of the largest distribution networks in the country, its high financial gearing and low operating margins remain a cause for concern. Unless there is an improvement in the same, the fundamentals of the company fail to justify the current level of high valuations.



    Equitymaster requests your view! Post a comment on "ACC: Sensible acquisition...". Click here!


    More Views on News

    ACC: Cementing Growth through Capacity Expansion and Favorable Sectoral Developments (Quarterly Results Update - Detailed)

    Jul 20, 2017

    Expanded capacity helped ACC strengthen its market presence in eastern region during the quarter ended June 2017.

    ACC: Jan-March Quarter Sales up 9% YoY, Margins Dip (Quarterly Results Update - Detailed)

    May 4, 2017

    Expanded capacity results in topline growth during the quarter ended March 2017.

    ACC: Demonetisation Takes Toll on Volumes (Quarterly Results Update - Detailed)

    Feb 20, 2017

    Demonetisation hits cement demand during the quarter ended December 2016.

    UltraTech: Post-Acquisition Cement Capacity Augmented to 93 MTPA (Quarterly Results Update - Detailed)

    Aug 11, 2017

    UltraTech Cement completed the acquisition of cement plants of Jaiprakash Associates Limited (JAL) and Jaypee Cement Corporation Limited (JCCL) during the quarter ended June 2017.

    Ambuja Cement: Fall in Other Income Drag Bottomline Lower (Quarterly Results Update - Detailed)

    Aug 11, 2017

    While topline witnessed growth on the back of higher cement sale volumes, a 50.5% YoY fall in other income weighed on Ambuja's bottomline during the quarter ending June 2017.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in ACC LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Detailed Quarterly Results With Charts