analysis of acc ltd

7/29/2019 Analysis of ACC Ltd.

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OBJECTIVE OF THE STUDY

There have been various objectives for this study, the first of which is adetailed analysis of the financial statements that is the balance sheet and the income

statement of UltraTech Cement Ltd. The second objective, however the most importantone or in other word the principle aim of this project is the understanding and assess-ment of financial ratios based on the statements of the company. The next aim of theproject is to recognize the position of the company through those ratios and dataavailable. This recognition is a leading factor in changes of each and every companyand the base and root of lots of management decisions.

ADITYA BIRLA GROUP

BUSINESS OVERVIEW & BENCHMARKS :

A US $28 billion premium conglomerate , the aditya birla group is in the league offortune 500. It is anchored by extraordinary force of 1,00,000 employees , belonging yp25 different nationalities. In india , the group has been adjudged the best employer inIndia and among the top 20 in asia by the hewit Economic Times and Wall street

journal study 2007. Over 50 % of its revenues flow from its overseas operations.

The group operates in 25 countries India , Germany , Hungary , Brazil , Italy , France ,Luxemburg , Switzerland , Australia , USA , Canada , Egypt , China , Laos , Indonesia ,Philippines , Dubai , Singapore , Myanmar , Bangladesh , Vietnam , Malasia and Korea.

In India :-

A premier branded garment player. The 2nd largest player in viscose filament yarn The 2nd largest chlor-alkali sector Among the top 5 mobile telephone companies. A leading player in life insurance and asset management Among the top 3 super market chains in the retail business.


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ACC Ltd.

ACC Ltd.: Company Highlights

ACC Ltd. Second largest cement company in India

Market View of ACC Ltd. (as of 27/01/2012)

Latest Stock Price:Rs. 1190.65

Latest Market Cap:Rs. 22377.08

52 Week High Stock Price:Rs. 1233

52 Week Low Stock Price:Rs. 917

Latest P/E:20.15

Latest P/BV:3.46

ACC Ltd. is Indias oldest and second largest cement company with a total Capacity of about 30

MMTPA. It commands a market share of 10.3% compared to 18.3% ofUltratech Cementsand 9.6%ofAmbuja Cements.It recently commissioned the worlds largest cement kiln with 12500TPD

capacity. It was acquired in 2005 by Holcim Ltd one of the worlds leading suppliers of cement.

Ambuja Cements is also a part of the Holcim group.

ACC ltd. has a pan India presence. This geographical diversity lends it a unique advantage. Since

cement prices vary across regions, this pan India presence augurs well for the company as it de-

risks the effect of this price change to a certain extent.

It is only in the western region that ACC has a low presence in its overall manufacturing pie mainly

because of the presence of its sister company viz. Ambuja Cements in the western region. (The

regional distribution of ACCs cement capacity is given in the pie -chart). Also, one of its main

advantages is that it is backward integrated as far as its requirement for power is concerned.
http://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-infohttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/ultratech-cement/company-infohttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/ambuja-cement/company-infohttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/ambuja-cement/company-infohttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/ultratech-cement/company-infohttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-info


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Expected Growth of the ACC Limited

Cement consumption to increase at a CAGR of 8 per cent over the next 5 years

CRISIL Research expects domestic cement consumption to register a CAGR of 8.0 per cent in the

next 5 years.

This is marginally lower than the 8.2 per cent CAGR recorded in the preceding 5 years. Growth in

the northern and southern regions is expected to be higher than the all-India average. However,

cement consumption in the western region, which rose by 8.1 per cent (CAGR) over the last 5 years,

is expected to be sluggish in the subsequent corresponding period on the back of the expected

slowdown in residential and commercial construction over the next 2-3 years

Capacities in excess of 100 million tonnes to be added over the next 5 years

CRISIL Research expects 115 million tonnes (additional clinker capacity of 90 million tonnes) of

cement capacity to be added from 2008-09 to 2012-13, compared to 37 million tonnes (additional

clinker capacity of 28 million tonnes) added in the previous 5 years. This new capacity translates to

55-65 per cent of the existing cement capacity in the country, the bulk of which are likely to get

commissioned in 2009-10 and 2010-11. Most of the additions are expected to come up in the Sout

Good growth in Sales and EPS: The analysis of thecompanys 10 YEAR X-Ray indicates that it has

had a cyclical performance. This comes from the very nature of the cement industry. Over a 5 year

period the company has grown its Net Sales by 12.4%; this is on account of increasing capacity
http://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-info#anchor-linkhttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-info#anchor-linkhttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-info#anchor-linkhttp://www.moneyworks4me.com/indianstocks/large-cap/construction-infrastructure/cement-construction-materials/acc/company-info#anchor-link


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expansion and higher realisation of prices. Its EPS (earnings per share) have increased at a much

faster rate of ~18% CAGR over 10 years.

Increased profit margins: The large earnings growth has come because of decreasing reliance on

electricity provided by SEB (State Electricity Boards) as the company is backward integrated as far

as power requirement is concerned. Also, higher cement prices and lower interest costs have

augured well for its earnings growth. This fast growth in earnings compared to sales has resulted in

higher NPM (Net Profit margin) today over the start of the decade. Its NPM in 2003 was ~5% with

capacity utilization at 83% compared to NPM in 2010 at ~14% and with capacity utilization at

77%. Thus, a lower capacity utilization still leads to higher NPM, this has occurred largely due to

higher operational efficiency and much better Capital Structure.

High ROE and ROIC: ACC has enjoyed a high ROE and ROIC over the last decade because of the

operational efficiency, more optimal capital structure, and negative non-cash working capital.

o Operational efficiency which is evident from its rising NPM despite lower capacity utilization.

o An optimal capital structure evident from its Debt/Equity ratio which was 1.68 about a decade ago

and has pared down to just 0.48. The companys capacity expansion programs over the years have

been financed mainly out of its earnings rather than debt. This has had a positive impact on thecompanys NPM.

o ACC and Ambuja Cements are the only large cap cement company to enjoy a negative non-

cash working capital. This means that it takes more credit from its vendors than it keeps inventory

and it gives credit to its customers. This has largely come because, ACC can leverage its large

economies of scale, its brand to run a very tightly run ship.

All these 3 points allow the company to enjoy a good NPM and higher ROIC and ROE.


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Looking at all this the companys 10 YEAR PERFORMANCE has been ratedGREEN (Very Good).

Impressive quarterly performance: The Company registered a good growth (31%) in its Net Sales

backed by volume growth (up 17%) as compared to the previous year. Net Profit at Rs. 167.5 Cr.

was up by 67% mainly due to higher other income and fall in purchase of traded cement.

Going forward: The Company is seeing increasing dispatches month of December saw an

increase of 9% in dispatches. But on the costs front, the outlook of coal (a key raw material) in terms

of availability and pricing does not seem too favourable.

Also, the overall outlook of the cement industry is bleak. The cement Industry is facing one of its

weakest cycles, with large capacity addition coming online, the cement market across India is

expected to stay weak for the next few quarters. Hence, the company is expected to witness growth

in sales, but margins may remain suppressed due to oversupply of cement and coal costs.

Hence, the short-term future prospects of the company can be expected to beOrange

(SomewhatGood).

Competitive Advantage What makes ACC a leader?

Over the years ACC has developed a few competitive advantages which have helped it maintain its

leadership position. These are:

Its all India market share of 10.3% after Ultra Techs 18.3%, allows it to enjoy economies of scale

like most other peers. Significantly the companys net price realizations per tonne of cement are

higher than that of Ultratech Cement across the whole Industry cycle. The higher prices realizations

are because ACC cement is considered to be a premium brand than Ultratech Cement. It recently

introduced a new product specifically meant for use in coastal regions; introduction of such region

specific products will help it continue to command a premium pricing.


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One of the most innovative companies. This gets reflected in its enhanced operationalefficiencies, optimum capital structure, negative non-cash working capital, and a First Mover

advantage in Ready Mix Concrete. Its association with HOLCIM and Ambuja Cements will allow it to

derive large economies of scale, and best international practices e.g. HOLCIMs European plants on

an average have 20% of its energy been met by alternative fuel and raw material. Such technology

exposure will lead to next phase of Growth in NPM over next two decades.

Its backward integration as far as power is concerned. ACC has a Captive Power Plant (CPP)

capacity of 361 MW from Coal Power Plants and 19 MW of Wind Turbine Generation. Currently ACC

derives about 65-66% of its power needs from CPP and about 33% from SEBs. CPP produced

power is at least 35% cheaper than the power purchased from SEBs or externally. ACC has been

continuously adding CPP power to its Energy Portfolio. By the end of Q3 CY 2011 ACC would haveincreased its CPP power by 25MW by commissioning a 25MW CPP at WADI. This will have a

positive impact on the companys costs and hence augur well for its margins.

Product Analysis: Cement inherently is a commodity product, but Ready Mix Concrete (RMC) is a

highly specialised product. ACC Concrete currently contributes just 7% of sales to ACC. Going

forward this is expected to increase to the global average of around 30-40% of ACC revenues

coming from RMC business. This also is expected to have a positive impact on NPM and ROIC.

Geographical Presence:ACC has a pan India presence with large exposure in capacity terms to

Southern and Northern India. The figure below highlights its market share in various regions in India.
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Expansion plans: Coal Prices remains the significant risk to the profitability of ACC business. As a

way of De-risking its business ACC is actively scouting for COAL BLOCKS in India and outside India

through its subsidiary ACC Minerals Resources Ltd. The subsidiary already has a Joint VentureAgreement with Madhya Pradesh State Mining Corporation Limited for development of four coal

blocks.

Industry Prospects and Structure: Indias per capita consumption of cement is just 1/7th of China.

This per capita consumption is expected to increase led by large Infrastructure and roads build up

that is necessary to maintain an 8-9% GDP growth rate in the next decade. Revival in roads contract

by the government and the real estate industry will give a flip to Cement industry. But large capacity

additions are already planned with about 40MMTPA coming on stream in 2011, this would keep the

Cement markets weak over short term and may lead to likely consolidation among cement players in

the next few years. All this may result in lower profit margins than what ACC has seen over last 5

years.

Rising energy prices remains the biggest concern for ACC. Power & fuel and freight prices both

are impacted by energy prices. Both power & fuel and freight constitute together about 36% of

ACCs Sales. Any significant increase in Energy prices thus remains a significant risk towards

maintaining Profit margins at healthy level.

Demand-Supply mismatch:

Cement Industry is facing one of its weakest cycles, with large capacity addition coming online. The

cement market across India is expected to stay weak till 2015. Capacity utilization wont reach near

its decade high before 2015. While demand is expected to grow at 10% CAGR over next few years,

planed capacity additions would lead to large Demand Supply gap. This is a cause for concern for

many cement players as demand as well as realizations will be affected for the next couple of years.


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Hence, despite these concerns over a long-term period, ACC is expected to have good growth at the

back of its strong competitive advantages, pan-India presence and expansion plans. Hence, the

long-term future prospects of ACC are expected to be Green (Very Good).

ACC Ltd. is Indias second largest cement player. With strong competitive advantages like its

leadership position, backward integration and operational efficiency, in the long-term ACC

Ltd. is poised to grow.

Currently, its stock price is at Rs. 1174. So, lets see what the technical chart of the company

indicates? Click to view the chart

ACC is among those very few stocks that are in longer term uptrend from their bottom in 2008/09.

The stock has been trading in an upward channel since 2009. Till now, stocks attempt to break this
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channel (upward or downward) has not been successful. Investors should watch out for price

movements near these parallel lines. Any break out (again upward or downward) could lead to a

major price movement.

However, remember technical should only be used as a supporting tool to fundamentals. One

should always take an investment decision based on how fairly is the company priced.

Considering its fundamentals, ACC Ltd. is an investment worthy company. It is considered to be a

safe-bet as compared to mid and small cap stocks. However, the current sluggish scenario in the

cement industry as a whole does create concerns for the short-term. Thus, investors should invest in

the company only at a discount to its MRP.

CAPITAL STRUCTURE

Capital Structure - ACC Ltd.

Period InstrumentAuthorized

CapitalIssuedCapital

- P A I D U P -

From To (Rs. cr) (Rs. cr)Shares

(nos)Face

Value

Capital(Rs.Cr)

2010 2010 Equity Share 225.0 188.8 187745356 10.0 187.7

2009 2009 Equity Share 225.0 188.8 187740292 10.0 187.7

2008 2008 Equity Share 225.0 188.7 187681819 10.0 187.7

2007 2007 Equity Share 225.0 188.7 187624404 10.0 187.6

2006 2006 Equity Share 225.0 188.3 187278108 10.0 187.3

2005 2005 Equity Share 225.0 185.6 184508237 10.0 184.5

2004 2005 Equity Share 225.0 179.6 178533611 10.0 178.5

2003 2004 Equity Share 225.0 178.2 177195530 10.0 177.2

2002 2003 Equity Share 225.0 172.0 170929944 10.0 170.9

2001 2002 Equity Share 225.0 171.8 170786635 10.0 170.8

2000 2001 Equity Share 225.0 171.7 170675296 10.0 170.7

1999 2000 Equity Share 225.0 171.7 170670748 10.0 170.7


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1998 1999 Equity Share 225.0 137.6 13662803 100.0 136.6

1996 1998 Equity Share 150.0 137.6 13701241 100.0 137.0

1995 1996 Equity Share 150.0 86.2 8563270 100.0 85.6

1994 1995 Equity Share 150.0 86.2 8563267 100.0 85.6

1993 1994 Equity Share 150.0 78.4 7833705 100.0 78.3

1992 1993 Equity Share 150.0 78.4 7833705 100.0 78.3

1987 1992 Equity Share 75.0 56.0 5595504 100.0 56.0

1986 1987 Equity Share 65.0 40.9 4084797 100.0 40.8

1985 1986 Equity Share 65.0 39.9 3987740 100.0 39.9

1979 1980 Equity Share 40.0 33.3 3323117 100.0 33.2

1976 1979 Equity Share 30.0 28.5 2848386 100.0 28.5

1968 1976 Equity Share 30.0 28.5 2848386 100.0 28.5

1966 1968 Equity Share 30.0 23.8 2373655 100.0 23.7

1964 1966 Equity Share 30.0 20.4 2034563 100.0 20.3

1958 1964 Equity Share 30.0 19.1 1906062 100.0 19.1

1954 1958 Equity Share 30.0 19.1 1271807 100.0 12.7

1953 1954 Equity Share 16.0 12.7 1271801 100.0 12.7

1948 1953 Equity Share 16.0 10.6 1056304 100.0 10.6

1946 1948 Equity Share 16.0 10.6 705421 100.0 7.1

1945 1946 Equity Share 16.0 10.6 705421 100.0 7.1

1944 1945 Equity Share 16.0 10.6 705421 100.0 7.1

1936 1944 Equity Share 8.0 7.1 705421 100.0 7.1

analysis of acc ltd

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