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Stock Outlook
Currently, the stock is trading at Rs 2,747.70 apiece on NSE. The stock’s 52-week low is Rs 1,900 apiece recorded on 7 March 2022, and the 52-week high is Rs 2,785 apiece, recorded on 14 September 2022, respectively.
Returns on Investments
Stock over the week moved up by 13.49%. In the past 1 and 3 months, it gave 23.35% and 29.45% positive returns, respectively. Over the 1 year, the stock surged 11.36%, whereas, in the past 3 and 5 years, it gave 79.98% and 50.91% positive returns.
Capacity Expansion, Cost Savings, and Synergies to Drive Future Growth
With the end of open offer the company’s ownership is now rest with the Adani Group. With the assumption of new management many levers of growth and cost savings is expected to take place. The company ACC Limited under Holcim regime could not capitalise on the growth momentum offered by the Industry owing to sluggish capacity expansion which resulted in market share loss to the other big players in the industry. With the change in the ownership, new management is expected to be more aggressive and a lot can change for the company moving ahead.
The brokerage see the company to be positively impacted in the following areas:
Savings in Royalty payment
Earlier, ACC Limited used to pay royalty to Holcim group at 1% of net revenue. Now onwards, it will pay no royalty and we estimate this will make the company save Rs 50-55/tonne on royalty payment.
WHRS Capacity expansion
The company is setting up WHRS capacity of 75 MW as a source of renewable power at its various integrated plants. This is expected to start operating in phases over CY23 and CY24 and will reduce the company’s power cost notably moving ahead to the extend of Rs 90-100/tonne. Furthermore, along with its own renewable power, the company can also source power from Adani Group companies on a better terms.
Raw materials sourcing
The company may source inputs such as flyash from Adani group companies on a favorable terms, thereby benefiting it in terms of cost savings. This will also ensure continuous supply of fly ash from shorter distance and help the company ensulate itself from sudden rise in flyash prices. The company will also get the benefit of sourcing imported coal and pet coke on better terms.
Network Optimization
The company tends to benefit on account of network optimization. With the Adani Group taking over the company, it will use its expertise in logistics and may use more sea route for transportation and reduce lead distance, resulting in substantial cost savings moving ahead. At present, ACC has MSA (Master Supply Agreement) with Ambuja Cement, its parent company and it has paid off well in terms of cost savings for both the companies.
Capacity Expansion
Currently, the company is expanding its capacity and is expected to touch 39 mtpa level by CY23 from the current 36 mtpa. We expect aggressive capacity expansion plan from the new management with an aim to gain market share and consolidate its position. Together both ACC and Ambuja Cements (its parent company) currently has 67 mtpa of cement manufacturing capacity. Earlier, Adani Group had outlined its intention to grow capacity to 130- 140 mtpa in the next 5 years.
As of 30th June 2022, the company has cash balance of Rs 4,500 Cr which can be used for both organic as well as inorganic expansion moving forward. It’s a debt free company and better utilization of excess cash will also improve its return ratio.
Outlook & Valuation
Over the years, the company lost its market share to other larger players in the industry owing to delayed capacity expansion, resulting in underperformance of the stock. This, however, is expected to change moving ahead as the new management is known for its aggressive approach. Furthermore, many levers of growth along with cost savings are expected to emerge as mentioned above. “We believe the stock is well-poised for re-rating and get higher multiple,” the brokerage said.
It added, “The company has Pan-India presence and with strong positioning in its key market of East and South India, resilient cement demand aided by capacity expansion, higher realization and impending cost benefit, we expect the company to gain market share going forward. The stock is currently trading at 15x CY23E and 12.5x CY24 EV/EBITDA. We roll over our estimate to CY24E and value company at 14x CY24E EV/EBITDA to arrive at a TP of Rs 3,050/ implying an upside of 11% from the CMP and change our rating from HOLD to BUY.”
Disclaimer
The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
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