ACC shares surge 5% on 1QFY20 results; should you buy or sell stock?

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Updated: July 19, 2019 12:42 PM

Shares of cement manufacturer ACC soared 5 per cent after it posted stellar results for Apr-Jun. Shares of ACC soared 5 per cent to Rs 1,647.30 per share on BSE

ACC stocks surged 5 per cent on Friday after the company posted stellar results for Apr-Jun

Shares of cement manufacturer ACC soared 5 per cent after it posted stellar results for Apr-Jun. Shares of ACC soared 5 per cent to Rs 1,647.30 per share on BSE. Today, the shares had opened at Rs 1,596.20 per share against the previous close of Rs 15,67.20 per share. ACC reported 38.61 per cent rise in its consolidated net profit at Rs 455.68 crore for the first quarter of FY 20. Total revenue of the company grew 7.83 per cent Rs 4,149.82 crore year-on-year in Apr-Jun. Going by the company’s robust results, analysts have recommended BUY on ACC stock. 

“Driven by attractive valuations, we maintain BUY with TP of Rs1,800 assigning EV/EBITDA of 11.5x CY20e. Lack of capacity growth and lower margins have widened discount on valuations to ~30% over its peers. These structural issues would limit the returns in the stock,” Prabhudas Lilladher said. ACC posted profit after taxes or PAT on the back of stronger than expected realisations. Realisations rose by 11% on quarter-on-quarter and 8% year-on-year increase. Volume was flat year-on-year against the brokerage firm’s estimate of 2% fall, according to Prabhudas Lilladher’s report.

Reliance Securities has also maintained a BUY on ACC stock. The brokerage firm has also revised its EBITDA estimate of the company by 4 per cent for CY19/CY20 to factor in high realisation. It has also revised its target price to Rs 1,870 per share from the earlier price of Rs 1,840 per share.  “We continue to maintain our positive stance on ACC owing to its strong penetration in rural markets (~75-80% trade segment volume) and consistent focus on premium products. Looking ahead, we expect its operating performance to remain healthy led by steady realisations and benign cost environment,” Reliance Securities said in a report. 

Meanwhile, Motilal Oswal Financial Services has also maintained BUY on ACC stock. It has increased its EBITDA/PAT estimate by 16%/10% for CY19 and by 13%/8% for calendar year 2020 to factor in higher realizations. “The stock trades at 7.4x CY20E  EV/EBITDA. We value the stock at 10x Jun’21E EV/EBITDA (30% discount to UTCEM) and arrive at a TP of INR2,040,” it noted in a report. 

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