Equity Research Report on

ACC Limited
Current Market Price- ACC
Ltd: Rs 1190
Target Price: Rs 1420

BUY

NM Wolves
Preet Jain
Aditya Aggarwal

Industry
Overview

Company
Overview

Financial
Snapshot

Current Industry Position

India is second largest producer of cement

in the world providing employment to more
than million people.
According to Department of Industrial Policy
and Promotion (DIPP), cement and gypsum
products
attracted
Foreign
Direct
Investment (FDI) worth US$ 3.1 billion
between April 2000 and September 2015
In the 12th Five Year Plan, the Government
of India plans to increase investment in
infrastructure to the tune of US$ 1 trillion
and increaseGrowth
the industry's
Driverscapacity to 150
MT
Rising industrial and agricultural output
Rising per capita GDP and income
Favourable demographic distribution with
rising working population and middle class
urbanisation
Favourable government policies
Large domination of private players
resulting in competitive pricing for
consumers

Investment
Rationale

Valuatio
n

Competitio
ns & Risks

Cement Industry sales growth Y-o-Y

450
400

Production of Cement (Million Tonnes)

407

Investment
Recommendati
ons

Cement Industry market

Share

Market Share

ACC

F-Forecast

Ambuja Cements

350
300
250
200

Ultratech Cement

206.6 216
161.3

174.3

230.5

248.2 255.8

270.3

156.9

137.3

150
100
50

5% 4% 4%
23%
5%
5%
6%
16%
7%
10%14%

Jaiprakash Cements
India Cements
Shree Cements
Century Textiles
Madras Cements
Lafarge
Birla Cements
Binani Cements

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16FY17F

Region wise demand distribution

28%

31%

13%
28%

Source:IBEF

North

East

West

South

Financial
Snapshot

Company
Overview

Industry
Overview

Company Information

Valuatio
n

Investment
Rationale

Key Stock Statistics

ACC is the second-largest panIndia cement manufacturer with

cement
production capacity of 30 MT.
ACC does innovative research,
product development and
specialized consultancy
The company's manufacturing
units are backed by only one of its
kind central technology support
services centre.
The company has increased its
capacity at
10% CAGR over the past five
years. Shareholding Pattern
ACC is still one of the higher cost
producers due to high fixed costs
17%
structure.
40%

NIFTY

ACC Sales Volume (000)

ACC LTD

FACE
VALUE(RS/SHARE)

Rs 10

Others

52-WEEK
RANGE(H/L)

27
25

Rs 1775/1198

24

Sales (mt)

23

BETA
Share in Issue (mn)
Entertprise Value
(cr)

1.03

22

187.7

21
2012

2013

2014

2015

2016

2017

22410

Sales

Free Float

Source:Crisi
l

28

Rs 23844 Cr

53.8

16%
18%

Deluxe

ACC Ltd vis-a vis Sensex

1-Year Price Chart of ACC Price

34%

DII

Sales (mt)
26

MARKET CAP

66%

FII

Investment
Recommendati
ons

8324/27860

NSE/BSE TICKER

8%

Promoters

Competitio
ns & Risks

Entry

Premium

2000
1500
1000
500
0

1-Year Price Chart

of ACC Price

Financial
Snapshot

Company
Overview

Industry
Overview

Competitio
ns & Risks

Revenue & EBITDA

Key Financial Ratios

Investment
Rationale

Valuatio
n

P/E :
39.54
Industry P/E :
38.04
EPS :
62.23
Current Ratio :
0.81
P/BV:
2.84
P/C :
18.81
Dividend Yield : 2.73%

EPS
80

14000

70

12000

60

10000

50

8000

40

6000

30

4000

20

2000
0
CY11

Investment
Recommendati
ons

10
CY12

CY13

Revenue(in Cr)

CY14

CY15

EBITDA (in cr)

0
CY11

CY13

CY14

CY15

Market Cap / Sales

RoCE & RoE

DPS

CY12

3
40

20

35

18
16

30

14

25

12

20

10

15

10

1.5
1

5
0
CY11

2.5

0.5

2
CY12

CY13

CY14

CY15

0
CY11

CY12

CY13
RoCE

Source: ICICIdirect.com

CY14
RoE

CY15

0
CY11

CY12

CY13

CY14

CY15

Industry
Overview

Financial
Snapshot

Company
Overview

Valuatio
n

Investment
Rationale

Competitio
ns & Risks

Investment
Recommendati
ons

DCF Valuation

WACC Assumtions
ACC is an all equity firm. So cost of
debt(Kd) is assumed to be zero
Risk free rate of return is 10 year India
Bond Yield Rate
Market return is taken according
Perpetual growth rate of 14% is
considered
Revenues are assumed to be 10% and
reduced subsequently by 0.5%

Discounted PV (Cr)
Debt
Cash(Cr)
Investments (Cr)
Equity value (Cr)
No. of Shares(Cr)
Intrinsic Value
Call

By Price/Earnings Rs.1400

49591.73
NIL
117.50
4088.80
53798
877.7
1420.1
BUY

Target Price
Derived

By Price/Sales

Rs.1000

By EV/EBITDA

Rs.1267

Comparable Peer Multiple Valuation

Valuation Methods

Value

Weightage

Weighted Value

By Price /Earnings

Rs 1400

20%

Rs 280

By Price/Sales

Rs 1000

15%

Rs 150

Fair Value

Rs 1420
By EV/EBITDA

Rs 1267

15%

Rs 190

By Free Cash Flow

Rs 1600

50%

Rs 800
5

Industry
Overview

Company
Overview

Robust Business Fundamentals

Pan India
Presence

Higher
Operatin
g cash
flows

Reliable
managem
ent team

Aggressi
ve
Expansio
n Plans,
R&D

New
ACC
will upgrade and
schemes/Plans
expand its jamul unit in
chattisgarh
and
its
grinding
unit
in
jharkhand.This
will
increase ACC S capacity
to 38 mtpa from 30 mtpa
by 2016 and 55 mtpa by
2020.
This Holcim subsidiary
has 50 million dollars
capacity
expansion

Large
Distributi
on
network

Financial
Snapshot

Valuatio
n

Investment
Rationale

Competitio
ns & Risks

Investment
Recommendati
ons

We maintain our long term positive view on the sector assuming

revival in demand ,slow capacity additions, low inflation cost and
imminent industry consolidation. Being a pan India player, ACC will be
beneficiary of the expected sector upturn. However adding to the
demand slowdown, we expect volume growth to moderate further due
to delay in capacity expansion.
Margin expansion will be limited due to high cost pressure due to
higher fright cost and more proportion of inefficient plants.
Foreign Foray

Focus on Innovation

Operational
Highlights
To improve efficiency
and reduce cost, there is
a 2 pronged approach.
One is phasing out of old
and
inefficent
plants.Thus
reducing
power usage per tonne
from 85Kwhr in CY07 to
80Kwhr in CY14.
The second approach is
to reduce dependency on
power purchase. ACC has
increased
its
captive
power
plant
capacity
from 237 MW in 2008 to
384 MW in 2012.

Industry
Overview
25000

Financial
Snapshot

Company
Overview

Investment
Rationale

Valuatio
n

Competitio
ns & Risks

Investment
Recommendati
ons

22,936.17

Risks
20000

15000
11,796.83
9,461.40

10000
6,453.57
5000

3,723.63
2,014.73

UltraTechCement
0.00

426.33

807.56

Shree Cements

Ambuja Cements
Last Price
Net Profit

591.57
ACC

242.35

The cement industry is

becoming intensely competitive
with the foray of new entrants
and some of the existing players
adopting inorganic growt
startegies

Ramco Cements

Sales

76,042.32

80000

The cement industry is capital

intensive in nature, there could
be exposure to time and cost
overruns

70000

Sustained pressure on operating

margin due to persistent
increase in prices of raw
materials

60000
50000
36,019.43

40000
30000

29,332.56

25,369.51

22,382.97

20000
5,892.76

10000
0

UltraT
0.00
echCement

Shree Cements

10,122.42

Ambuja Cements
Market Cap.

8,235.61

ACC
Total Assets

4,908.82

8,563.57

Ramco Cements

Industry
Overview

Company
Overview

Financial
Snapshot

Valuatio
n

Investment
Rationale

Competitio
ns & Risks

Investment
Recommendati
ons

TARGET
PRICE
Rs. 1420

CURRENT
PRICE
Rs. 1191

Potenti
al
Upside
19.20%