Upcoming Adani Stock Dividend: Midcap Cement Stock To Declare Dividend, Q4 Next Week; BUY For Rs 3,225

Adani Group-backed cement player, ACC Ltd will be in focus next week as it will announce its Q4 results for FY24. But that's not all, this midcap company is also going to announce a dividend for the fiscal, after a payout of 92.5% last year. ACC is a dividend-paying stock and has the potential for further upside. The company's share price has the potential of nearly 34% upside in the near term.

This week, on Friday, ACC shares ended at Rs 2406.80 apiece, marginally down with a market cap of Rs 45,196.64 crore. YTD, ACC stock is up 7%, while in a year, the upside is around 40%.

In its regulatory filing, it said that "a meeting of the Board of Directors of the Company is scheduled to be held on Thursday, April 25, 2024, inter alia, to consider and approve the Audited Financial Results of the Company for the quarter and financial year ended March 31, 2024 (both Standalone and Consolidated) and to recommend dividend, if any on equity shares of the company, for the financial year 2023-24."

Last year, ACC paid dividends of up to 92.5% amounting to Rs 9.25 per share. As per the Trendline data, ACC has delivered 35 dividends since June 2001.

For Q4FY24, Motilal Oswal estimates volume growth between 11-12% for ACC, while the company is seen to report strong EBITDA growth YoY between 74-75%.

While Motilal Oswal is Neutral on the stock, HDFC Securities has recommended BUY for Rs 2,845 apiece.

In Q3FY24, ACC achieved significant improvements in all financial matrices. Revenue has grown 8.3%, Operating EBITDA (excl. other income) has grown 139%, and EBITDA margin expanded by 10 pp from 8.4% to 18.4%. Cash & Cash equivalent at Rs. 4,282 crore is an improvement over the previous quarter (Rs. 3,634 crore). The company's consolidated net worth has improved by Rs. 538 crore and stands at Rs.15,361 crore.

ICICI Direct has set the highest target on ACC for Rs 3225, which hints at a nearly 34% potential upside.

Giving its investment rationale, ICICI Direct highlighted a few pointers.

1. Healthy volume growth led by capacity expansions:

ICICI Direct believes that the company's volumes to grow at ~10% CAGR over FY23-26E to 40.8 mtpa by FY26E, led by the ramp-up of recent capacity additions, upcoming expansions and pick-up in demand along with synergy benefits from parent company's units. Moreover, the commencement of 3.3 mtpa clinker at Amethi would further help in cement production growth.

2. EBITDA/tone to improve considerably going forward:

The brokerage expects ACC to benefit substantially in terms of margin expansion, led by a focus on operational efficiencies led by increasing waste heat recovery power share to 25% by FY25E from 9% at present, benign fuel prices and positive operating leverage (led by healthy volume growth).

It also believes that the potential synergy benefits from the parent's other units (master supply agreement) & businesses (ports & logistics) would further help in improving its efficiencies in terms of raw material, power & fuel and freight cost.

Moreover, the brokerage believes that the company's cement realisation would also rise in the coming periods led by a pick-up in demand, increasing industry consolidation and increasing share of premium products.

On valuation, ICICI Direct said, "We believe that ACC is strongly positioned led by strong parentage, focus on operational efficiencies, healthy volume growth & strong balance sheet with net-cash position." It added, "We expect revenue to grow at ~9% CAGR over FY23-26E to Rs 22,879 crore in FY26E. However, EBITDA & PAT are expected to grow at ~44% & ~73% CAGR over the same period to Rs 3880 crore & Rs 2446 crore respectively in FY26E, led by considerable margin expansion."

Lastly, ICICI Direct added, "Valuation at 11.2x EV/EBITDA on FY26E basis (EV/ton of $123/ton) looks attractive considering the multiple tailwinds. We recommend BUY on ACC with a target price of Rs 3225 per share (based on 14x FY26E EV/EBITDA)."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.