Comments
Motilal Oswal
ACC (Buy)
CMP: ₹1,479
Target: ₹1,771
ACC is engaged in manufacturing of cement and ready mixed concrete (RMX). The Company manufactures cement, which includes Ordinary Portland Cement, Portland Pozzolana Cement, Portland Slag Cement and RMX. The company is planning to add 6 mt of capacity at a total capex of ₹3,000 crore, which will come on stream over the next three years. This will be funded by internal accruals and help the company to protect its market share in the central and east regions. ACC’s profitability gap with peers has narrowed significantly over the last few quarters, led by its higher proportion of a) premium sales; and b) sales from its new cost-efficient units of Jamul and Sindri.
The company has also done well to manage costs, driven by its higher proportion of linkage coal, lower lead distance and route optimization. Besides this, ACC is trying to rationalise fixed costs. The stock trades attractively at 8.3x FY20 EV/EBITDA and $94/tonne.
With growth concerns being addressed, the valuation discount of over 30 per cent to large caps on EV/ton and EV/EBITDA should narrow substantially. We value ACC at 9x CY20E EV/EBITDA to arrive at a target price of ₹1,771.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.