Buy This Cement Stock, With A Target Price Of Rs. 2710: ICICI Direct Recommends

Brokerage firm ICICI Direct recommends investors to buy the stocks of ACC Ltd. (cement industry) with a target price of Rs. 2710. With higher cost efficiencies and a better product mix (premium products), this company has a strong potential to grow.

Target Price

The Current Market Price (CMP) of ACC Ltd. is Rs. 2244. The brokerage firm, ICICI Direct has estimated a Target Price for the stock at Rs. 2710. Hence the stock is expected to give a 20.77% return, within 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 2244
Target Price	Rs. 2710
1 year returns	20.77%

Company performance

ACC has delivered an 11% EBITDA/te CAGR over CY16-CY21E. The company's EBITDA/te inched up to Rs. 1,127/te in 9MCY21E resulting in narrowing of the gap vs peers. Ametha expansion (of 5mnte) provides volume visibility over CY22E-CY24E. According to ICICI, "Net cash may further increase up to Rs. 88bn by CY23E from Rs. 60bn in H1CY21 thereby increasing the probability of higher dividend payout." ICICI added, "Dividend payout ratio averaged 66% over CY11-CY17 vs 20-25% over CY18-CY20."

Comments by ICICI Direct

Maintaining a buy rating, ICICI Directs said, "ACC achieved ~Rs. 100/te savings in CY20 via its cost efficiency program Parvat and balance is expected to be realized by CY22-23E. Nearly 50% of these savings may come via the reduction in primary and secondary freight (rationalizing C and F agents), higher direct despatches, warehousing cost rationalization, etc. Balance savings may be equally attributable to manufacturing excellence (via clinker factor reduction, decrease in spare inventory, source mix optimization, improved operational efficiencies) and fixed-cost rationalization (via renegotiating contracts)." However, present low demand is a risk factor.

About the company

ACC Limited, formed in 1936, is one of the leading players in the Indian building materials space, with a pan-India operational and marketing presence. ACC has 17 cement manufacturing units, over 90 ready mix concrete plants, over 6,600 talented employees, a vast distribution network of above 50,000 dealers and retailers. They have a Sustainable Development 2030 Plan which is focused on four broad themes: Climate, Circular Economy, Water and Nature, and People and Communities. ACC has 4 subsidiary companies.

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Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.