Buy This Mid Cap Cement Stock, Shares Can Surge 23% In 12 Months: ICICI Direct

ICICI Direct in its recent report on ACC Ltd. has rated it with a "Buy" call. The brokerage has given a target price of Rs 2,900 to the stock. According to the brokerage firm's estimated target price, the stock is likely to gain 23% in 12 months. It is a mid-cap cement sector company with a market cap of Rs 44,581.64 crore.

Business Overview

ACC (now Adani group conglomerate part) is a large cement player with a capacity of over 34.5 MT in India and one of the oldest cement players in the industry. ACC also manufactures ready-mix concrete and has 50 plants across India. ACC has a strong balance sheet with debt-free status Ongoing capex of Rs 3500 crore would increase its capacity to 39.3 MT by CY22E. Grinding unit (GU) in Sindri & Tikaria has already been commissioned, balance 3.2 MT new capacity is progressing as per schedule.

Stock Outlook & Returns

The current market price (CMP) of ACC stood at Rs 2,374.05 apiece on NSE, 1.31% up from its previous close. Its 52 week low level is 1900 and the 52 week high level is Rs 2,785, respectively.

In a week, the stock has fallen 7.11%. It has given 3.73% in the past 1 month and 10.15% in the past 3 months, respectively. Over the past 1 year, it gave 4.53% positive return to shareholders. Whereas, in the past 3 and 5 years, it has given 45.24% and 43.28%, respectively.

Key Highlights

The recently concluded deal (worth $6.5 billion) between Holcim & Adani has now made Adani Group the second largest cement player in the industry with a combined total cement capacity of 67.5 MT (ACC + Ambuja). Post the deal, Adani now holds 63.15% stake in Ambuja and 56.69% stake in ACC (of which 50.05% is held through Ambuja Cement).

The Board of both these companies has also been reconstituted. Gautam Adani will be the Chairman and Non-Executive, Non-Independent Director of Ambuja Cement (promoter entity of ACC) while Karan Adani will be the Chairman and Non-Executive, Non-Independent Director of ACC.

The new promoter intends to double the group's cement capacity in next five years and become largest and most efficient cement company by 2030.

Keeping this in mind, the new board of Ambuja (parent of ACC) has approved fund infusion of Rs 20,000 crore by issuing warrants to the promoter entity on a preferential basis at a price of Rs 419. Post conversion of these warrants, promoter's shareholding in Ambuja will increase to 70.3% vs. 63.2% at present while effective holding in ACC will rise to 41.8%.

Also, the group's exposure to energy and logistics will help it to improve cost dynamics and gain supply chain efficiencies

Buy for a target price of Rs 2,900

ICICI Direct said, "Given the healthy outlook, new aggressive management & comfortable valuations post-correction, we retain our BUY rating. We value ACC at Rs 2,900 i.e.11.5x CY23E EV/EBITDA."

Key triggers for future price performance

• While the group is envisaging doubling the current capacity over the next five years, the ongoing expansion (Rs 3,500 crore capex) would increase ACC's capacity to 39.3 MT by CY23 from current 34.5 MT capacity.
• Cost efficiency measures like higher renewable power share, strong logistics support of promoter group to drive margin expansion in long run.
• Immediate cost benefits would come from royalty cost savings, raw material sourcing like fly ash, coal on better terms.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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.