Top pick for the week: Axis Securities suggests this cement stock to buy

“Stock is currently trading at 14x and11x CY23E/CY24E EV/EBITDA. We recommend a Buy the stock for a target price of ₹2,760 per share,” the note stated while sharing as its top pick for the week. ACC Limited- a part of Adani Cement is one of India’s leading producers of cement and ready-mix concrete.

The company is expanding its cement grinding capacity to 39.2 mtpa from present 36.1 mtpa to be able to cater to the high-growth market of Central India. These capacities are expected to be commissioned in phases over CY22-CY23. 

“Central regions is exhibiting promising growth potential driven by increasing housing and infra activities as per capita Cement consumption of the region is one of the lowest in India. We expect the company to deliver volume growth of 7% CAGR over CY22-CY24E and clock revenue CAGR of 10% over the same period,” the brokerage house said.

The company exhibits a robust financial position with a debt free balance sheet, high interest coverage ratio, and healthy cash flows, as per Axis Securities. While the company can fund ongoing capacity expansion through internal accruals, it will continue to have adequate liquidity to meet any Capex requirement moving forward. It expects the capital structure of the company to remain healthy from medium to long term perspective.

“Over the years, the company lost its market share to other larger players in the industry owing to delayed capacity expansion, resulting in underperformance of the stock. This, however, is expected to change moving ahead as the new management is known for its aggressive approach. Furthermore, many levers of growth along with cost savings ( ₹250-300/tonne) are expected to emerge in terms of raw material sourcing, network optimization, sourcing of renewable energy and WHRS capacity expansion,” the brokerage added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.