Title of the Project

Valuation of ACC Cements

Executive Summary
The purpose of this project is to valuate ACC Cements primarily using the DCF
method. The starting point of this project are the financials of the company (mainly
of last 5 years), namely the Balance Sheet, P & L Statement and Cash Flow
Statement. With suitable assumptions, the line items were projected, considering
explicit period till 2020. The Free Cash Flows thus obtained were discounted to
obtain the value of the company, and the obtained Intrinsic Value was then
compared to the current Market value of the firm.
Intrinsic Price Per Share

Rs. 1,577.03

Market Price Per Share

Rs. 1364.55

All the assumptions have been mentioned in the workbook. Apart from valuation,
Scenario Analysis, Chart Analysis and Scenario analysis have also been performed
for more insight.

Methodology used for valuation

Collection of data and input

Defining assumptions and value drivers
based on secondary research and
prudence
Projection of Balance Sheet line items and
P & L sheet
Computation of FCF and subsequent
valuation
Performing of other analysis and valuation
methods
Collection of data
The major sources of data are: Companys Annual Report (Financials)
Bloomberg Terminal
Moneycontrol
Value Drivers
The cement industry demand has been forecasted (Source : xxxxxxxxxxx ) , which
in turn has been based on various drivers such as GDP, Housing demand and
inflation. We have therefore assumed that for ACC , the total demand of the cement
(Estimated) itself encapsulates the effect of all the value drivers. In other words,
the Capacity Utilization and Price are the key figures we have begun with.

Overall treatment
The half-yearly results for 2015 are out, hence we decided to build upon the
estimated figures of 2015 on the same.
The Market Share has been slightly increased and then kept constant.
2011

2012

2013

2014

2015

2016

201
7

201
8

201
9

2020

The cement demand for the whole industry has been projected by means of
data from source (xxxxxxx)
The Balance sheet and P & L has been projected by means of certain
assumptions mentioned in the workbook.
The Cashflow has been prepared from B/S and P&L
The operating expenses involved in manufacturing of cement has been
projected as % of Gross Sales. The two major Expenses, Raw Material
Expenses and Other Manufacturing Expenses, stay well within a range of
13-15% and 43-47% so the assumption is considered fairly reasonable.
The company has used SLM for depreciation, and we have adopted the
same.
WACC computation
It is to be noted that the company has no debt as of now. And since it is able to
manage the CAPEX via reinvestment of its income from operations, we have
assumed no debt for future too. Therefore the WACC calculation here involves
calculating only the Cost of equity Ke. For the purpose of calculating Ke we in
turn required:Risk-free rate
Market Risk Premium
Beta

7.84%
Bloomberg
9.06% https://sites.google.com/a/xlri.ac.in/profmohanty/underst
anding-valuation
0.78
Obtained by using daily market data (2010-2015)

The Cost of Equity was computed by the equation Ke = rf + Beta*(rm rf) =

14.87%

As there is no debt WACC = Ke = 14.87%

FCFF assumptions
For the purpose of projecting FCFF we have projected the industry demand 1st and
then keeping the market share constant over long term, we have projected demand
and matched it with the projected industry capacity (Source :
). There has
been constant investment to ensure that capacity does not become constraint.
Long-term Growth in Industry Demand = 4% (Historical Average)
Market Share = 11% (Slight increase over Average)
Expected Price Increase = 4% (Historical Average)
Corporate Tax Rate = 33.9%
Long-term Depreciation Rate = 4.8% SLM (Historical Average)
Operating Expenses = % of Gross Sales (Historical Average)
Terminal Growth Rate = 4.1% (U.S last 10 year GDP Growth 2.3% + Last 10
years inflation Rate 1.8% from World Bank Data
http://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG?display=default)
All the assumptions including these are covered in the workbook.
Capex
We have assumed a constant Capex expenditure (as a % of Op. Sales) 5.7% (which
is the Capex in the year 2014).
The terminal Capacity Addition in terms of MT is 4%, and depreciation is 4.8% (of
Gross-Fixed Assets)
To sustain a growth of 4%, the investment ratio has to be more than Growth/ROIC.
Terminal ROIC > 30%. Investment Ratio therefore should be more than 13.33%
We have ensured the same.

2011
23.73

2012
24.11

2013
23.93

2014
24.21

2015
25.44

2016
30.26

2017
35.63

2018
38.14

2019
40.83

2020
43.71

We feel that there has been tremendous change in the fundamentals of the economy
as well as most of the analysts are predicting the industry demand much higher
than what we have used, hence ACC would increase its capacity and be poised to
meet the demand and therefore even though the capacity has not changed much in
the last few years, it is justified it would change drastically in the next 5 years.
Output
As ACC does not have any debt, FCF = FCFE in this case.
Using a terminal growth rate of 4.1%, we have computed the terminal value and
discounted using the WACC to obtain PV of all the FCF (or FCFE). Summing
them up and dividing them by no. of shares to obtain intrinsic value per share.

FCFF

2015

2016

2017

2018

2019

2020

867.0
9

2,660.
92
14.87
%
0.86

3,288.
28
14.87
%
0.86

3,554.
19
14.87
%
0.86

3,924.
56
14.87
%
0.86

4,338.4
9
14.87%

0.87

0.76

0.66

0.57

0.50

Ke
DDT
Discou
nt

0.86

41,940.
28

Terminal
Value
PV
(FCFE)

1,996.
98

PV
(Termin
al
Value)
Equity Value
Intrinsic Value per
share
Current Share Price

Scenario Analysis

2,148.
36

2,021.
52

1,943.
24

1,870.1
4
18,078.
70

29,640.21
1,577.03
1364.55

Scenario Summary
Current
Values:

Changing Cells:
Growth_in_Sales
Terminal_Growth
Result Cells:
valuepershare

Optimistic

Pessimistic

11.60%
5.00%

13.60%
6.00%

9.60%
4.00%

1,548.58

2,200.98

1,031.66

Sensitivity Analysis
We have performed Sensitivity Analysis varying Terminal Growth and WACC and
obtained Share Price (Intrinsic) for different combinations.

1,577.
03
11.87
%
12.87
%
13.87
%
14.87
%
15.87
%
16.87
%
17.87
%

2%

3%

4%

5%

6%

7%

8%

1,832.
64
1,663.
12
1,522.
42
1,403.
82
1,302.
53
1,215.
04
1,138.
74

1,977.
82
1,777.
44
1,614.
18
1,478.
65
1,364.
39
1,266.
77
1,182.
44

2,159.
90
1,917.
54
1,724.
54
1,567.
26
1,436.
67
1,326.
54
1,232.
44

2,394.
99
2,093.
25
1,859.
78
1,673.
82
1,522.
26
1,396.
38
1,290.
20

2,710.
21
2,320.
12
2,029.
40
1,804.
42
1,625.
19
1,479.
08
1,357.
71

3,154.
91
2,624.
31
2,248.
41
1,968.
21
1,751.
33
1,578.
53
1,437.
63

3,829.
52
3,053.
46
2,542.
05
2,179.
69
1,909.
54
1,700.
41
1,533.
75