Corporate Valuation: ACC Ltd

Industry Analysis

Started in 1914, with first plant in Porbander, and today is second largest producer of cement in the world. Major cost components

Power and fuel Limestone Transportation cost (low value, high volume commodity)

Use of dry process technology, since 1980’s to help in power cost savings. About 94% of the total reserves are concentrated in only ten states. Andhra Pradesh and Telangana together house

around 26% of the country's total reserves.  Cement plants are usually located closer to hotspots in the market, or to areas with sufficient quantity of raw material. The top 20 cement companies account for almost 70 per cent of the total cement production of the country, and there

are large number of small players, with low market share. (80:20 rule) Cement is primarily classified into Portland, blended and speciality cement. The proportion of blended cement has increased between 2005-06 and 2015-16, resulting in less pressure on limestone

reserves. The RMC segment is still at a nascent stage in India, as a small share of cement produced is converted into RMC, as

against over 50 per cent in developed countries.

Industry Analysis (Demand Dynamics)

Demand Dynamics

Cement demand failed to pick up in 2015-16 amidst slower off-take in private housing, and delayed spending on government-sponsored housing project, while infra demand provided some respite to the sector.

Over a five-year period, cement demand is projected to increase at 7.0-7.5% CAGR, led by

revival in government spending in housing (esp. affordable housing),

marginal uptick in private housing, and

fast growth in infrastructure spends (esp. urban infrastructure, road, and irrigation).

Capacity additions, will be significantly lower compared to last 5 years, due to  huge additions during this period despite sluggish demand.

Prices to be under pressure despite demand growth due to over capacitation.

Operating margins to increase on the back of lower power and fuel costs.

Nature of industry

Regional Cyclical and seasonal Capital intensive

PORTERS FIVE FORCE

Company Overview

ACC Limited (Formerly The Associated Cement Companies Limited) one of the largest producers of cement in  India.

Headquarters- Mumbai. Cement House

Management control of company was taken over by Swiss cement major Holicim in 2004. On 1 September 2006 the name of The Associated Cement Companies Limited was changed to ACC Limited.

Only cement company to get Superbrand status in India. India's foremost manufacturer of cement and ready mixed concrete with 17 modern cement factories, more than 50 ready mixed concrete plants, a vast distribution network of over 9,000 dealers and a countrywide spread of sales offices. 

In 1936 ten cement companies belonging to Tatas, Khatus, Killick, Nixon and FE Dinshaw groups merged to form a single entity, The Associated Cement Companies. Sir Nowroji B Saklatvala was the first chairman of ACC. The first board of directors had some prominent industrialists— J R D Tata, Ambalal Tata, Ambalal Sarabhai, Walchand Hirachand, Dharamsev Khatau, Sir Akbar Hydari, Nawab Salar, Jung Bahadur and Sir Homy Mody.

SWOT Analysis

• Ranked India’s most admired company in the cement sector• One of the top cement and construction companies based out of India• Vast distribution network of 9,000 dealers in the country.• It has been into operations since last 80 years.• It has a strong efficient workforce of around 10,000 employees.• Received Green Manufacturing award and many other rewards

STRENGHTS

WEAKNESS•ACC as a brand is famous only in India, so it not known globally as compared to other brands.•Done lesser branding activities as compared to its competitors.

SWOT Analysis

• It can do extensive branding in the country that can help them increase brand recall and thus help the brand to grow as a whole

• ACC can leverage the Indian market leadership and expand to other parts of the world.

• Extended services in the field of construction

OPPORTUNITIES

THREATS•Faces strong competition from global players in Indian markets.•Many local players offering low cost products are one of the threats for the company.

DCF ValuationDCF

RELATIVE VALUATION

MULTIPLESRelative Valuation

No. of share = 18.7745356 crore

Enterprise ValueFrom EBITDA 47866.8 CrFrom Sales 33735.12 CrAverage 40800.96EV per Share 2173.20

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