Tata MF-Backed Adani Group Stock Is Axis Securities’ Top Pick of The Week: Here’s Why

With a widespread operating and marketing presence throughout India, ACC Limited (ACC) an Adani Group member is a prominent participant in the building materials industry in India. To better service its clients, ACC maintains a statewide network of channel partners in addition to 18 cement production facilities and more than 80 RMC plants. Axis Securities, a brokerage company, issued a buy call on the stock, citing it as the top pick of the week with a target price of Rs 2615, suggesting a potential upside of 10.10% from the stock's current market price of Rs 2375.

Investment Rationale

According to Axis Securities, here are reasons to buy the shares of ACC which investors should note before buying.

Capacity Expansion to strengthen footprint in Central region: The company recently commissioned a 1 mtpa Grinding Unit in Ametha (MP). This has taken the company's total cement manufacturing capacity to 37 mtpa, fostering a higher presence in the demand-accretive Central region. Its 3.3 mtpa Clinker unit at the same location was commissioned earlier.

Central regions are 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 12% CAGR over FY23-FY25E and clock revenue CAGR of 15% over the same period.

Better Synergies to drive EBITDA/tonne: Various cost optimization drives undertaken by the company reduced its overall cost by 17% YoY to Rs 4,797/tonne. Consequently, its EBITDA margins improved to 12.4% in Q3FY23. Moreover, the company's ongoing optimization initiatives are expected to bring down the operating cost further. The company's EBITDA margin will expand further with reducing clinker factor and logistics costs, increasing sales of premium products, higher share of green energy, and better cement prices. We, therefore, foresee the EBITDA/tonne of the company improving to Rs 920 in FY25 and margins to 16%.

Higher govt focus on housing and infra to drive Cement consumption: Housing and Infra which consume around 80-90 per cent of the total Cement produced in the country, will further accelerate the Cement demand as Central govt is very keen on developing the housing (urban & rural, low-cost housing), Infra (Rail, Road, Port, Airport, Ropeways) under the various Central govt programs and initiatives. With general election 2024 fast approaching, rising construction activities will fuel the Cement demand moving ahead. We expect the overall Cement demand in the country to grow at a CAGR of 8-9 per cent over FY23-FY25.

ACC Share Price Target

With expanded capacity, better pricing. increased demand, moderation in commodity prices and better synergies with other Adani group companies, we expect ACC to report Revenue/EBITDA/APAT CAGR of 16%/55%/85% respectively over FY23-FY25E. Stock is currently trading at 14x and 10x FY24E/FY25E EV/EBITDA which we believe is attractive compared to other larger peers in the sector. We recommend a BUY on the stock for a target price of Rs 2615/ implying an upside of 10% from CMP," said Axis Securities in a note.

ACC Shareholding Pattern

During Q2FY24, the company reported 56.69% promoters' shareholding, FIIs stake of 7.10%, DIIs stake of 22.79%, Govt stake of 0.15% and public stake of 13.26%. According to the shareholding pattern of ACC for July to September 2023 quarter, Mirae Asset Midcap Fund held 19,61,183 shares or 1.04% stake, SBI S&P BSE Sensex Next 50 ETF held 44,86,971 shares or 2.39% stake, Tata Flexi Cap Fund held 33,85,471 shares or 1.80% stake and ICICI Prudential Large & Mid Cap Fund held 39,96,195 shares or 2.13% stake in the company.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.