ACC to set up Clinker and Cement facility in Jamul Chattisgargh

ACC, a part of the Holcim group, is one of the major cement producing companies in India. In a letter submitted to the BSE , the company has announced its plans to set up a new clinker producing plant in the eastern region at Jamul, Chhattisgarh.  

The new clinker production facility will have a capacity of 2.79 MTPA, and the company will also set up an allied grinding facility at Jamul. With this, the company will also phase out its old plants, including a clinker capacity of 0.76 MTPA and cement capacity of 1.58 MTPA, and will focus on brownfield expansion. Against the phasing out the old cement plant, the company has planned to set up a 5 MTPA cement producing capacity by 2015 in a phased manner. One of the reasons for phasing out the old plants can be the cost of production, which is high due lower productivity.

With its recent expansion in Chanda in Maharashtra and Wadi in Karnataka, the company took its cement producing capacity from 27 MTPA to 30 MTPA. With the new 5 MTPA plant, the total capacity will increase to 35 MTPA. The company spokesperson declined to comment on the cost of the expansion plan. However we believe that the company will need around Rs 1000 crore for the expansion of the clinker and cement capacity, as brownfield large capacity expansions are widely done at the cost of Rs 2000 per tonne. As per the financial results for the year ending 2011, the company has a cash balance of Rs 1659 crore and debt of 500 crore. Its debt-to-equity ratio is 0.14:1, which is quite comfortable.

The company spokesperson said that eastern region remains one of the major markets for the company, and the company is going ahead with its expansion plans due to buoyancy in demand. The ongoing power and infrastructure projects have been holding cement demand in the eastern region.

Meanwhile, for the quarter ended Dec 2011, ACC reported strong QoQ and YoY performance. The revenues improved by 22% on a YoY basis to Rs 2555 crore. The highlight of the result is the improvement in its net profit, which increased by 83% on a yearly basis to Rs 470.44 crore. This was largely on account of better realisations, stock adjustment and a higher ‘Other’ income portion, which grew by 89% to Rs 45 crore against the same period last year.

At its current market price of Rs 1388.50, the scrip is trading at a P/E of 18.9x at a annualised EPS of Rs 70.52. The valuation looks fair given the improvement expected in demand in the ongoing quarter. Also, the company has posted decent margins on the back of higher realisations, which may not correct in the near term due to the pick-up in demand. However, a hike in the coal prices may impact the margins going forward. Keeping all these factors in view, we at DSIJ, believe that there is still some marginal upside for the stock. We recommend that investors should accumulate the scrip during the dips.