ACC shares traded 3.38 per cent lower to close at Rs 1,450.55 apiece on BSE on Monday even as the company posted an 18 per cent on-year rise in consolidated net profit at Rs 273 crore for the quarter ended December 31. The company had posted a net profit of Rs 232 crore in the corresponding period of the previous year. Post healthy quarterly earnings, at least three brokerage companies have recommended to buy this cement major with an upside of up to 23 per cent. “ACC’s 4QCY19 result reflects management’s efforts to reduce costs and maintain market share. Volumes increased 4% YoY in a weak market demand environment. Costs declined further by 2% QoQ to INR4,536/t. We maintain our CY20/21 estimates and Buy rating,” Motilal Oswal Institutional Equities said in a research note.
Net sales of the ACC grew 5 per cent on-year to Rs 3,970 crore during the quarter under review. The company has also recommended payment of a dividend of Rs 14 per share on a face value of Rs 10. “ACC has faced significant de-rating over the past five years and now trades at 35-55% discount to peers such as Shree Cement, UltraTech and Ramco. With the recent capacity announcements, ACC’s proportion of inefficient assets is likely to decline, driving healthy profitability,” Motilal Oswal Institutional Equities said. The brokerage company has recommended to buy this stock with a target price of Rs 1790, an upside of 23 per cent.
However, another brokerage company Emkay Global Financial Wealth cites lower cement demand and pressure on cement prices as key downside risk for the stock. It has a target price of Rs 1,749, an upside of over 20 per cent. ” Clarity on its expansion plans (grinding capacity of 5.9mt) announced in Dec’18 would be the key trigger for the stock as it would mitigate concerns about volume growth. We believe that the clinker plant order has yet not been placed and hence, there will be a delay in its commissioning,” Emkay Global Financial Wealth said in a research note.
“We maintain BUY on ACC with a revised TP of Rs 1,780 (11x its CY21E consolidated EBITDA, implying EV of USD 140/MT). While ACC closed CY19 with subdued 4QCY19 performance in the cement segment, working capital release boosted its CY19 OCF to a decade high,” Rajesh Ravi, Analyst, HDFC Securities said. It has set a target price of Rs 1,780, an upside of 22 per cent.
ACC also said that the government’s major announcement to grant a full tax exemption for sovereign wealth funds for investment in infrastructure projects along with the abolition of Dividend Distribution Tax (DDT) will be positive for new investments in the sector and help in revival of cement demand. The recently announced Rs 102 lakh crore of infrastructure projects, under the National Infrastructure Pipeline (NIP), is expected to drive cement demand.