ACC’s Capacity Expansion To Help Meet Growing Demand

ACC, one of the cement companies owned by the Swiss-based Holcim Group, has laid out the plan to invest Rs 3300 crore over 3 years for setting up a 5 MT cement and clinker capacity at Jamul in Chhattisgarh.

Though the plan was announced by the company on Mar 1, 2012, they had not chalked out the investment figure earlier. This time the management has came up with all the details and has stated in the media that the company will incur an investment of Rs 3300 crore for setting up the new capacity. The project will be implemented in a phased manner and is scheduled for completion by Q1 2015. The company has also mentioned that the entire funding will be done through internal accruals over a period of 3 years.

As for the financial results for the year ending 2011, the company has a cash balance of Rs 1659 crore and a debt of 500 crore. Its debt-to-equity ratio is 0.14:1, which is quite comfortable.

Expansion Updates

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

It also mentioned that the company is looking to develop four coal blocks in Madhya Pradesh and one in West Bengal. This will help it to fulfill its coal requirements and to reduce its dependence of coal from the open market, which is available at higher prices due to supply shortage.

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

ACC has done well in the Dec 2011 quarter on the back of higher realisations and an improved demand scenario, and will continue to witness similar growth in the coming quarter. Cement companies have increased the cement prices twice in last two months, which will result in better realisations in the Mar 2012 quarter. However, the 20% hike in freight rates will eat away some of the benefits resulting from the cement price hike.

In conclusion, the expansion plans will take the company’s total production capacity from 30 MT to 35 MT, which will help the company to tap the increase demand for cement from the higher construction and infrastructure spending in the coming years.