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Centrum Broking
ACC (Buy)
CMP: ₹1,510
Target: ₹1,820
ACC is engaged in manufacturing of cement and ready mixed concrete. The company’s segments include cement and ready mix concrete. The company manufactures cement, which includes Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Slag Cement (PSC) and Ready Mixed Concrete (RMX).
We maintain ‘buy’ on ACC, with a target price of ₹1820. ACC has announced 5.9 million tonne cement grinding expansion along with 3mn MT clinker expansion — a major chunk of these capex will be greenfield. These projects are expected to be completed by end of CY21, entailing total capex of ₹3,000 crore. While these projects will not clear off medium-term volume growth concerns, about 20 per cent capacity increase at the end of CY21 will certainly boost long-term growth visibility for ACC and also portray a positive picture on the promoters’ (LafargeHolcim) intention to grow their India business.
We remain positive on the stock owing to its inexpensive valuations and as the industry’s cost pressure has started to ease off from October 2018 onwards, and as strong demand should lead to improvement in cement pricing. Further, ACC’s material supply agreement (MSA) with Ambuja will also moderate cost inflation.
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