ACC On Expansion Mode

ACC, one of the leading players in the cement industry has announced it would increase its production capacity by 4 MT (million tonnes) to 10 MT in the eastern region of India. This expansion plan would take the total capacity to 34 MT by 2016.

In accordance to the plan, ACC would be enhancing capacities at two of its existing plants and additionally constructing a grinding unit. At Jamul, Chhattisgarh, the company would be enhancing its clinkering line by 2.79 MT and its grinding facility by 1.10 MT. It would also carry out expansion at its plant in Sindri, Jharkhand.

Plus, it would start the construction of a 1.5 MT grinding unit at Kharagpur, West Bengal by January 2014 which would cost 600 crore. This unit is expected to be commissioned by 2016. The expansion plan would improve production in the eastern region and reduce the load from Damodar Cement, a wholly owned subsidiary of ACC, which is the only aid for the company in West Bengal.

ACC would be undergoing an investment of Rs 3000 crore for the upgradation. This would be funded using internal accruals and no additional debt would be taken. ACC’s debt to equity ratio stands as 0.02x and the above plan would thus have no implications on the financial health of ACC. For the construction of the new grinding unit, the company is negotiating with the state government for the acquisition of 150 acres of land. 

ACC is hoping for an increase in demand of cement in the future. According to Twelfth Five Year Plan (2012-17), the government plans to increase its investment in infrastructure to USD 1 trillion as compared to USD 514 billion under the Eleventh Five Year Plan (2007-12). Project such as improvement of ports and airports, various bridges and flyovers are some of the infrastructure activities which the government have planned.

With a capacity utilisation of 79% in 2012 and a robust expansion plan for the next three years, the company seems to be hoping for an increase in the demand of cement in the future, and is gearing up for it.

Currently, the stock of ACC is trading at Rs 930.35, which is a YTD decline of 35% reflecting negative sentiment on the stock. Currently the economy is in slowdown and hence one should wait for the right time to invest.