ACC’s balance sheet is strong. demand is key

Cash and cash equivalents have increased year-on-year (y-o-y) 7,422.6 crores last year as per Jefferies India Pvt. Ltd. is estimated. The brokerage believes that higher profitability drove this correction despite a more than 50% increase in capex.

“Slight reduction in cash level in CY22E and likely to match CY20, as ACC announces more than 3x increase in dividend, further increase in central sector capex (2.7 million tonnes (mt) of clinker and track in Q2CY22) 4.8mt grinding expansion), and potentially weak profitability in CY22 due to cost pressures,” said analysts at Jefferies in a report on March 29. According to the ACC annual report, the dividend payout ratio in CY21 increased to 60% from 19% in CY20. Was.

This year, the ACC expects industry cement demand to grow by 7% annually due to a possible increase in infrastructure spending by the government. In CY21, ACC volumes grew 13% year-on-year to 28.89 million tonnes due to continued demand for affordable housing in rural areas and increased government spending.

Still, concerns remain about high raw material prices. In CY21, electricity and fuel prices climbed 31% year-on-year. However, the cost control measures implemented under Project ‘Mountain’ and the Product Premiumization Initiative helped the company to report expansion in standalone operating EBITDA (earnings before interest, taxes, depreciation and amortization) margins.

Nevertheless, margins of cement companies are likely to be under pressure in the current year and ACC is no exception. This is because of the sharp rise in the prices of key inputs like petroleum coke and coal.

Investors have taken note. ACC’s shares are down about 3% so far in CY22. However, in the past one year, ACC stock has gained nearly 15% against the muted performance of peers such as UltraTech Ltd and Ambuja Cements Ltd, whose shares have lost 2% and gained 1%. respectively.

“The company’s guidance on improving profitability and capacity expansion has put investors to rest as the outlook is bright. ACC has managed costs very well in the past as well, as evidenced by the improvement in EBITDA per tonne,” said an analyst on condition of anonymity. Jefferies priced ACC stock at 10x Dec-23E EBITDA Importance is given to reach the goal. 2,450. ACC shares closed on Wednesday 2,150.90 on NSE. It helps that the company has zero debt and high liquidity on its balance sheet. ACC’s cash is approximately 18% of its current market capitalization at the end of 2021. That said, weaker-than-expected demand trends and continued higher input costs will play poorly.