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Tuesday, March 15, 2011

Andhra Cements Ltd:-Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Andhra Cements Ltd
cmp:12
Code:532141

Story:Andhra Cement Ltd. (Andhra Cement) incorporated in 1936 is one of India’s oldest cement manufacturers and a part of Duncan Goenka Group with two manufacturing plants in AndhraPradesh.At present, Andhra Cement has two operative plants at Guntur and Vishakhapatnam, Andhra Pradesh with an annual installed capacity of 0.8 MTPA and 0.6 MTPA respectively, aggregating 1.4MTPA capacity.Andhra Cement is in the process of upgradation and expansion its existing plant capacity to 3.5 MTPA from 1.4 MTPA.On successful completion of the project, Company’s topline and bottomline is expected to post robust growth.Andhra Cement’s enjoys institutional patronage by premier Insitutes like Fidelity Capital Investment (5.06% holdings), IDFCL td. (10.79% holdings) and HDFC Ltd. (8.42% holdings).➢ Large Domestic Financial Institutions like HDFC and IDFC have partly funded upgradation cum expansion plans of Andhra Ce-ment through a mix of debt and equity of more than Rs 300 Crs.In September 2010, Andhra Cement allotted 69.9 Lacs Equity Share at Rs 24/share each to HDFC and IDFC by way of converti-ble debentures, this sets a benchmark rate of Rs 24/share for the Company. Thus HDFC holds 8.42% stake and IDFC holds 10.79% stake in the Company as on 30th September 2010.Andhra Cement with 3.5 MTPA of installed capacity could fetch valuation of around Rs 400 Crs /MTPA, a standard valuation for a Cement Plant with a benefit of premium of 15% for acquiring con-trolling interest in the company.Andhra Cement’s Promoters have pledged 94.14% of its 8.80 Crs Equity Shares in the company of which 21 Lacs pledged shares are sold by Pledgee thereby I believe their is a distinct possibility of the Company to be sold resulting into huge unlocking of value for its investors.Offlate in the last few years their has been lot of acquisitions which happened in the cement sector-Mysore Cements got acquired by Heidelberg at valuation of about USD 117 per tonne. Shree Digvijay Cement got acquired by CIMPOR at USD 162 per tonne, Ambuja Cement was taken over by Holcim at USD 200 per tonne and the latest acquisition in the cement space has been private company called My Home and Industries which is a Hyderabad based company which happened at about USD 235 per tonne. So even if I take a base case scenario of USD 100 per tonne which is probably the worst case scenario, the likely scenario in this case would be anywhere between USD 150-200 per tonne, which means significant upside in the stock value from these levels.Expect a gain of 40-50% in this stock on a horizon of 9-12 months.

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