Associated Cement Company (ACC) is a leading manufacturer of cement and ready made concrete and is part of Swiss based Holcim Group.
The company is highly dependent on the domestic economy and has managed to tide over the last 2-3 years of slow GDP growth in a fairly commendable way. The company recently declared a dividend of Rs 19 per share with a dividend yield of 2.4% based on current market price of 1218.75 INR commanding a market cap of 228215 Millions which translates to 2.04 times sales.
Income Statement- (Millions)
The company has seen below average topline growth for the last 3 years (3-4% average) mainly due to a slowdown in end-user industries like real estate and infrastructure. The P/E ratio is 16.99 times. The EBITA margin is around 15% for the TTM period which is a reasonable margin considering the current slowdown.
Technicals-ACC Weekly Chart
Stock has broken below lower trend line support, Next support near 1100 levels. Break above 1420 is essential for bullish uptrend to emerge.
What’s not so good?
Though the company has contained the downside during the recession period, the entire industry has come under the regulatory scanner by the Competition Commission of India (CCI) which is investigating charges of cartelization and price fixation by the industry players.
To invest, or not to invest?
We feel that the economic cycle may be turning with the RBI starting to cut rates and the next few years may see a revival of the CAPEX cycle according a higher valuation. We feel that this stock is a definite buy for longer term investors with a holding period of greater than 3 years and can be bought in the price range of 1100/1200 INR compared to current market price of INR 1218.75 (as on May 31 2013).The stock is part of the NIFTY with good liquidity.
We recommend a strong buy on falls to levels of 1100/1200 to a maximum of 5-7% of one’s portfolio as a core portfolio hold with targets 1600/1700 in the coming 3 years which is expected to yield an average price appreciation of 14-15% pa.
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