ACC share price jumps 6% despite 40% fall in profits; here’s why brokerages, investors are bullish

Analyst Corner, JK Cement, JKCE, utilisation markets, UAE subsidiaries, EBITDA, NimbaherBrokerage firms are upbeat on ACC, as cement prices continue to rise and the company steers towards aggressive cost saving.

Cement manufacturer ACC Ltd share price jumped over 6% on Tuesday to trade at Rs 1,422 per share, despite reporting weak numbers for the April-June quarter. ACC reported a sharp drop in consolidated net profit to Rs 270.95 crore from Rs 455 crore, in the same period last year. Earnings before interest tax depreciation and amortization (EBITDA) too fell 33% from the previous year. However, the surge in share price can be attributed to the long-term expectations from the stock of improving its ratios and margins. The quarterly results, although down was above the estimates of analysts who predicted weaker realizations for the company.

Brokerage firms are upbeat on ACC, as cement prices continue to rise and the company steers towards aggressive cost-saving. “Company reduced power and fuel costs steadily over the past couple of years on the back of higher energy efficiency and optimization of coal mix,” said Prabhudas Lilladher in a report. The blended cost of ACC declined to Rs 4,362/T down 7% from the previous year. This was aided by lower raw material, power, and fuel costs and substantial cuts in discretionary fixed costs. Although costs can increase in the near future, analysts expect that higher volumes and lower coal costs will offset the jump in fixed costs.

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As of June 2020, ACC had net cash of Rs 4.7 crore, owing to better working capital management. Analysts at ICICI Securities believe that this position might further increase. “ACC’s 1.1mnte grinding unit at Sindri may go onstream by H1CY21E; while 4.8mnte expansion may be delayed to CY22E owing to COVID19 pandemics,” ICICI Securities said in a report. ACC share price has soared 52% from March lows, and are now just down 3% year-to-date.

“The recovery in cement demand has surprised positively in the North, Central, and East regions post easing of the lockdown. Our channel checks indicate that demand in these regions continues to remain better than our estimates even in July 2020,” said brokerage firm Emkay Global in a report. The brokerage firm is overweight on ACC in its model portfolio while also increasing EPS, sales, and profit estimates. 

While Motilal Oswal and Emkay Global see an 18% upside on the stock to reach a target price of Rs 1,570 per share, Prabhudas Lilladher has a target price of Rs 1,505 set on the stock. ICICI Securities, meanwhile expects the stock price to reach a target price of Rs 1,625 apiece. Holding a contrarian view, Nirmal Bang sees a downside of 5% on ACC stock price and expects that cement prices may slide in the coming months after having peaked in the last few months. 

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