Capacity Expansion And Cost Leadership Will Drive Long Term Premium Cement Upside

Catalysts

About ACC

ACC is a leading Indian cement producer, leveraging Adani group synergies to scale low cost, premium cement and related building solutions nationwide.

What are the underlying business or industry changes driving this perspective?

• Rapid capacity expansion from 107 MTPA to 155 MTPA by FY '28, including low CapEx debottlenecking and new clinker lines, is expected to unlock operating leverage and support volume led revenue growth.
• A structural shift toward premium cement, supported by 13 new blenders, Adani backed branding and deeper contractor engagement, is likely to support realizations and EBITDA margin expansion from current levels.
• An aggressive cost leadership plan, with targeted total cost reduction from INR 4,200 per ton to INR 3,650 per ton by FY '28 through fuel efficiencies, logistics optimization and higher green power, directly supports higher net margins.
• Accelerating adoption of digital and AI driven operations via CiNOC and advanced plant technologies is intended to improve asset reliability, reduce operating expenses and enhance per ton profitability across the network.
• Industry wide demand support from infrastructure and housing, combined with ACC's market presence, rising RMX consumption and potential carbon credit income, offers visibility for revenue and EPS compounding over multiple years.

Assumptions

This narrative explores a more optimistic perspective on ACC compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming ACC's revenue will grow by 13.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 13.9% today to 7.8% in 3 years time.
• The bullish analysts expect earnings to reach ₹27.0 billion (and earnings per share of ₹148.37) by about December 2028, down from ₹33.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹19.3 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.2x on those 2028 earnings, up from 10.0x today. This future PE is lower than the current PE for the IN Basic Materials industry at 30.2x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.22%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The aggressive expansion from 107 million tons toward 155 million tons by FY 28, including three new clinker kilns and extensive debottlenecking, could coincide with a weaker than expected demand cycle or industry overcapacity, placing pressure on cement realizations and limiting revenue growth and EBITDA per ton.
• The cost leadership plan assumes sustained reductions in kiln fuel cost, power cost and logistics cost through AFR usage, green power and digital optimization. Any reversal in energy prices, slower green capacity ramp up or execution slippage at new plants would risk missing the INR 3,650 per ton cost target by FY 28, compressing net margins.
• Integration and turnaround of newly acquired or younger assets such as Penna, Sanghi and other expanding units depend on timely commissioning, rising utilization and stable maintenance costs. Prolonged ramp up, reliability issues or higher than expected repair and digitalization spend would drag consolidated earnings.
• The strategy relies heavily on premium cement, RMX and B2B growth supported by brand investments and contractor ecosystems. Any long term slowdown in construction, housing or infrastructure cycles, or intensified price discounting by peers, could cap premium share gains and limit revenue growth and mix driven margin expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for ACC is ₹2624.45, which represents up to two standard deviations above the consensus price target of ₹2105.18. This valuation is based on what can be assumed as the expectations of ACC's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2750.0, and the most bearish reporting a price target of just ₹1600.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be ₹346.1 billion, earnings will come to ₹27.0 billion, and it would be trading on a PE ratio of 27.2x, assuming you use a discount rate of 14.2%.
  
• Given the current share price of ₹1771.7, the analyst price target of ₹2624.45 is 32.5% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.