Wednesday, December 30, 2015

ACC: A bet on the economy

ACC has a consistent dividend paying record. Over the last five years, the company has paid 50-55 per cent of its profits as dividend every year. The dividend paid stood at about Rs.30-35/share.

With cement manufacturing capacity of 30 million tonnes, ACC is the second-largest cement producer in the country. Its total cement capacity will stand increased at 35 million tonnes by end-2016, thanks to additions in Jharkhand (by 1.35 MT), Kharagpur (by 2.7 million tonnes) and Chhattisgarh (by 1.1 million tonnes grinding unit).

For more than two years, the capacity constraint in the East saw the company lose market share.

Now, as the new capacities get commissioned in a year’s time, ACC may regain the lost share from peers and volume growth may return. All capex can be funded internally without disturbing dividends as the company has healthy cash and is debt free.

The company’s total borrowing of Rs.567 crore outstanding in 2009 was entirely repaid by the end of 2014. The company generated profits (after tax) of Rs.1,000 crore plus every year during this period.

Now, given that the company is working towards improving operational efficiency by replacing some legacy plants, which saw an increase in maintenance expenses and operating metrics, things are also set to improve for the company.

The scope for appreciation in the stock price is, however, limited. Until there is a strong revival in the economy and consumer spending on housing improves, cement despatches may not go up significantly. Market sentiment on cement stocks might also stay tepid until then.

With IIP showing an uptick, some improvement in cement demand is likely in the next six-nine months.

It was a lacklustre show by ACC in the September quarter. Volumes were flat at 5.6 million tonnes over the same quarter last year and revenue was marginally lower. Profits were down 11 per cent.

The recent ruling by COMPAT, setting aside the penalty slapped on cement companies on charges of cartelisation, provides temporary relief to the company.

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