Why this cement major is a good buy despite Covid-led disruption

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Analysts maintained their bullish view on cement major ACC after it posted 74.16% year-on-year (YoY) growth in consolidated net profit at Rs 562.59 crore for the quarter ended March 31. The company, which follows January-December financial year, had posted a profit of Rs 323.02 crore in the same quarter a year ago

Its total revenue from operations grew 22.57% YoY to Rs 4,291.94 crore during the quarter under review as against Rs 3,501.63 crore in the year-ago period. Brokerage ICICIdirect.com said, “ACC’s Q1CY21 performance was ahead of our estimates led by better sales volumes and higher margins.”

It further added that the Covid induced lockdown may impact sales in the near term. However, strong underlying demand should help the company recover lost volumes as and when normalcy resumes. ICICIdirect retained ‘Buy’ call on ACC with a price target of Rs 2,250. Shares of the company traded 0.94% higher at Rs 1894.45 at around 10.55 am (IST), while the benchmark BSE Sensex was up 259 points, or 0.54%, at 48,208 at around the same time.

On the other hand, Japanese brokerage firm Nomura retailed ‘Neutral’ call on ACC with a price target of Rs 1,930. “Cement demand recovery post initial Covid-19 lockdowns has been very strong, however with the rising COVID-19 cases, multiple states have announced lockdowns again and there could be near term impact on the cement demand,” Nomura said.

Motilal Oswal also holds ‘Buy’ on ACC with a price target of Rs 2,205. “ACC trades at a 35-60% valuation discount to peers Shree Cement, UltraTech and Ramco. We believe such a large discount is excessive as ACC has arrested its market share losses since CY17. Cost is expected to stay in check aided by savings in logistic costs and with planned expansions, the proportion of inefficient assets would decline, improving profitability,” Motilal Oswal Financial Services said.