ACC: Axis Securities selects the stock as its ‘pick of the week’, sees 10% upside – 3 key reasons
The brokerage has a ‘buy’ call on the stock with a target price of ₹2,615, implying a potential upside of 10 percent
ACC Limited, a part of Adani Cement, is one of India’s leading producers of cement and ready-mix concrete. It is a member of the Adani Group – which has the largest and fastest-growing portfolio of diversified sustainable businesses. ACC has 18 cement manufacturing sites, over 80 RMC plants and a nationwide network of channel partners to serve its customers. Established in 1936, ACC is counted among the country’s ‘Most Sustainable Companies’ and is recognised for its best practices in environment management and corporate citizenship.
Stock Price Trend
The stock has lost a little over 2 percent in the last 1 year and over 9 percent in 2023, giving positive returns in 6 of the 12 months. It gained the most in December, 18 percent, and shed the most in January, down over 19 percent.
However, just in January this year, the stock has jumped over 7 percent.
Currently trading at ₹2,355.35, the stock is 5.5 percent away from its 52-week high of ₹2,486.35, hit on January 10, 2023. Meanwhile, it has advanced 48 percent from its 52-week low of ₹1,593.50, hit on March 28, 2023.
Earnings
Cement maker ACC reported a standalone net profit of ₹384.29 crore for the quarter ended September 30, 2023, versus a loss of ₹91.09 crore posted by the company in the corresponding quarter of the last financial year.
However, on a quarter-on-quarter (QoQ) basis, the Adani Group company reported a 17 percent decline in profit. The company had reported a net profit of ₹463.93 crore in the June ended quarter.
The standalone revenue from operations for the reporting quarter stood at ₹4,434.67 crore which was up 11.2% from ₹3,987.34 crore in the year-ago period. In Q1FY24, the company reported revenue of ₹5,279.35 crore.
Half-yearly standalone net profit stood at ₹848.22 crore which soared 547 percent from ₹131.08 crore on the year-on-year (YoY) basis. On a half-yearly basis, the revenue from operations stood at ₹9,635.78 crore which was up 14 percent YoY from ₹8,455.73 crore.
Investment Rationale
Capacity expansion to strengthen footprint in central region: The company recently commissioned a 1 mtpa Grinding Unit in Ametha (MP). This has taken the company’s total cement manufacturing capacity to 37 mtpa, fostering a higher presence in the demand-accretive central region. Its 3.3 mtpa Clinker unit at the same location was commissioned earlier. Central regions are exhibiting promising growth potential driven by increasing housing and infra activities as per-capita cement consumption of the region is one of the lowest in India, said the brokerage. It expects the company to deliver volume growth of 12 percent CAGR over FY23-FY25E and clock revenue CAGR of 15 percent over the same period.
Better synergies to drive EBITDA/tonne: Various cost optimisation drives undertaken by the company reduced its overall cost by 17 percent YoY to ₹4,797/tonne. Consequently, its EBITDA margins improved to 12.4 percent in Q3FY23. Moreover, the company’s ongoing optimisation initiatives are expected to bring down the operating cost further. The company’s EBITDA margin will expand further by reducing clinker factor and logistics costs, increasing sales of premium products, higher share of green energy, and better cement prices, noted the brokerage. Axis, therefore, foresees the EBITDA/tonne of the company improving to ₹920 in FY25 and margins to 16 percent.
Higher govt focus on housing and infra to drive cement consumption: Housing and infra which consume around 80-90 percent of the total cement produced in the country, will further accelerate the cement demand as the central govt is very keen on developing housing (urban & rural, low-cost housing), infra (rail, road, port, airport, ropeways) under the various central govt programs and initiatives. With the general election of 2024 fast approaching, rising construction activities will fuel the cement demand moving ahead, stated Axis. It expects the overall cement demand in the country to grow at a CAGR of 8-9 percent over FY23-FY25.
Outlook & valuation
With expanded capacity, better pricing, increased demand, moderation in commodity prices and better synergies with other Adani group companies, it expects ACC to report Revenue/EBITDA/APAT CAGR of 16 percent/55 percent/85 percent respectively over FY23-FY25E. Stock is currently trading at 14x and 10x FY24E/FY25E EV/EBITDA which it believes is attractive compared to other larger peers in the sector.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision
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Published: 09 Jan 2024, 12:56 PM IST
