Financial Daily from THE HINDU group of publications
Sunday, Jul 27, 2003
Financial Daily from THE HINDU group of publications Sunday, Jul 27, 2003 |
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Investment World
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Stocks Markets - Recommendation ACC: Good value at play S. Vaidya Nathan
INVESTORS with a penchant for high risk can consider exposures in the ACC stock as the prospect of an open offer by Gujarat Ambuja, or a hostile bid by an MNC, cannot still be ruled out. The fundamentals look set to get consistently better. Existing shareholders can stay invested in the ACC stock for two reasons: One, a continuing improvement in its operational parameters and, two, the question of control, which remains an unsettled issue. The ACC stock is stiffly valued compared with its peers such as Grasim and Gujarat Ambuja. This is despite the lower levels of operating efficiency. The higher valuation, to some extent, is due to the possibility of an open offer. An offer by Gujarat Ambuja may carry only a modest premium to the current price. But if there is a hostile bid involving an MNC, the open offer may be at a substantial premium. If there is no action on this front, ACC's stock price may, eventually, get fully linked to fundamentals. Here, the story will continue to take a turn for the better. ACC holds the prospect of incremental improvements in efficiency levels, with the Gujarat Ambuja group playing a crucial role. An increasing proportion of its production is also set to come from newer capacities and older ones that have been modernised. The benefits should accrue in the form of sustainable, higher operating profit margins. If this effect was not evident last year, it was due to the aggressive push for volumes, even if it meant taking lower prices. The story on the pricing front has now acquired a twist favouring producers. This was the case in the April-June quarter, as earnings almost trebled to Rs 56.7 crore. At 12.7 per cent, ACC's operating profit margins improved by three percentage points over 2002-03. If this is maintained at between 11.5 and 13 per cent, it may report a quantum jump in sustainable earnings in 2003-04.
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