ACC, Ambuja Cements gain up to 7% in a weak market; trade near record highs

Share of LafargeHolcim Group companies ACC and Ambuja Cements rallied up to 7 per cent on the BSE in the intra-day trade on Monday, in an otherwise weak market, on the back of heavy volumes amid positive outlook.

Individually, ACC rallied 7 per cent to Rs 1,865, trading close to its record high level of Rs 1,893.80, touched on March 5, 2021. Trading volumes on the counter more-than-doubled with a combined 4.8 million equity shares changing hands on the NSE and BSE till 12:59 pm. In comparison, the S&P BSE Sensex was down 1 per cent at 49,341 points.

Shares of Ambuja Cements, meanwhile, were up 4 per cent at Rs 295.35, and were trading near its all-time high level of Rs 298.25, hit on March 5. The company, in its calendar year 2020 (CY20) annual report said, the outlook for the cement sector in the medium-term remains positive with continued focus on affordable housing.

“The government is aiming at completing construction of all houses under the scheme by 2022, which could accelerate the pace of demand recovery. Over the medium-term, we expect all India cement demand to grow at around 5-6 per cent on average mainly on the back of rural housing (accounts for 30 per cent of the cement consumption), followed by the infrastructure segment (20-25 per cent), mainly railways, roads and housing for all,” it said in its report.

ACC, on the other hand, highlighted in its annual report that its cost optimization efforts (project Parvat), sustainability initiatives, brand portfolio, innovative product offerings and capex plans are boding well. The management claims to have saved Rs 250 crore through initiatives taken under project Parvat.

Given this, analysts at Nirmal Bang Equities say that while the report talked about optimistic demand expectations, they believe that ACC’s capex, which is happening after a long time, is delayed and the company is likely to report lower than industry average volume growth from CY21-CY23.

“A large part of the cost savings for ACC is due to lower input costs, which will also reverse going forward. Other efficiency parameters like specific heat consumption and electricity consumption per unit remain below average,” it added.

As regards Ambuja Cements, the firm will add 3mn mt clinker unit and 1.8mn mt grinding unit at Marwar Mundwah (Rajasthan) by Q2CY22. The management has indicated that it will evaluate Greenfield and brownfield capacity expansions and will update in the next few months.

“However, the current expansion is just 6 per cent of the company’s total cement grinding capacity. While this expansion will address clinker constraints in North India and possibly add additional volume of around 4mn mt, and it will not be enough to arrest the market share loss,” Nirmal Bang Equities’ analysts said in the December quarter results update.

It added: The management is also undertaking underground mining development at the Gare Palma coal block, which will extract 1mn mt of coal per annum, addressing major part of the company’s coal requirement. The audit committee of Ambuja Cements has approved the renewal of the Master Supply Agreement with ACC for 3 years w.e.f. May 2021, with a cost-saving objective of 5 per cent of profit before tax.

“Over the next two years, Ambuja Cement’s profitability will benefit from its capacity expansion in the north and low-cost waste heat recovery system (WHRS) and solar power expansions. The company also hinted that it is exploring capacity expansion at various locations to drive long-term growth visibility,” analysts at HDFC Securities said in a report. The brokrage maintains ‘BUY’ rating with a revised target price of Rs 308 per share.

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