Analysts give thumbs up to ACC

Most broking firms have increased their price target for ACC, one of the largest cement producers, focusing on cost savings on the back of government spending on infrastructure.

Most analysts have increased the price target to ₹2,600 from the current level of ₹1,882.

Jefferies, the diversified financial services firm, has revised the EPS target by 8-9 per cent over the next year. A medium-term investment case remains contingent upon capacity addition guidance, it said.

The overall production cost of ACC declined 4 per cent QoQ which is much better than the forecast.

ACC purchase of cement from its parent company Ambuja Cement under MSA (master supply agreement) at ₹180 crore was up 62 per cent year-on-year.

"Our estimates build-in moderate volume growth due to uncertainty around pandemic related restrictions. Otherwise, upgrade would have been even higher. However, the revised estimates may have downside risk in case there is a significant disruption to construction activity," said Jefferies.

ACC management was cautiously optimistic in the context of a sharp rise in Covid cases. Its optimism comes from the government's increased spending and its focus on infrastructure development, it said.

Citi Research said that the realisations were down one per cent quarter-on-quarter.

However, cement prices have been hiked by ₹10-30 per 50 kg bag in April. If April prices can sustain in this year, it would imply a 5 per cent higher realisations compared to last year. This should more than offset cost inflation, said Citi Research.

The overall operational cost was down quarter-on-quarter. Higher raw material, petcoke and diesel prices were more than offset by improved operating leverage and employee productivity, besides usingalternate fuels, efficiency improvement and mix optimization. Focus on direct despatches, network optimisation and procurement savings also helped, it added.

However, Morgan Stanley sees limited upside and fixed its price target at ₹2,000 a share.

Maintaining underweight on the stock, given capacity constraints in the near term in the northern and eastern region, ACC's volume growth to lag peers on a two-year CAGR basis. ACC has high exposure to the South, where pricing and realisations could lag those of other regions. Valuation is cheap compared to peers, but re-rating triggers and upside potential are limited, it added.

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