ACC Ltd's stock performance has raised significant concerns among investors, declining approximately 10% over the past year even as shares of many cement companies have shown gains. This muted performance comes despite the company reporting strong September quarter (Q2FY26) numbers, indicating that the market is looking beyond short-term results to assess medium-term growth prospects.
The Supply Agreement Driving Growth
Analysis from Emkay Global Financial Services reveals a telling pattern in ACC's operational strategy. Between calendar year 2021 and fiscal year 2025, ACC's cement capacity increased only about 4% while volumes rose 13%. This significant disparity implies that most of the sales growth was driven by the master supply agreement between ACC and its parent company Ambuja Cements Ltd.
The data clearly shows ACC is increasingly relying on traded volumes and group-level supply arrangements rather than building its own integrated capacity. As Ambuja Cements accelerates its integrated capacity expansion at a much faster pace, ACC's dependency on these supply arrangements appears to be growing.
Capacity Expansion Plans and Challenges
ACC has outlined ambitious expansion plans, expecting its capacity to reach 43.7 million tonnes per annum by the third quarter of FY26. The company has committed to adding 5.6 million tonnes at $48 per tonne over the next 24 months.
However, Emkay expects only about 7% capacity addition over FY25-28 without any significant clinker capacity addition. This reinforces the shift toward supplied volumes rather than built capacity. The limited clinker capacity coming onstream means ACC could remain dependent on Ambuja, a structure that market analysts believe could cap profit margins unless integrated additions are accelerated.
Cost management and utilization rates will be critical factors to watch as ACC ramps up fresh capacity. The company's ability to pass through costs and establish favorable transfer pricing will determine how much profit it can generate on each additional tonne sold.
Integration Plans and Investor Concerns
PL Capital notes that while execution of internal efficiency projects is still in early stages, ACC's operating performance should improve gradually over the next two years. This aligns with management's broader plans to consolidate operations under Ambuja Cements and achieve a consolidated cost target of ₹3,650 per tonne by FY28.
The financial services firm emphasized that this integration, if implemented impartially, would ease investor concerns about ACC's future prospects. Addressing these concerns directly during its Q2 results announcement, ACC committed to keeping shareholders informed about any developments regarding a potential merger with Ambuja.
Working capital constraints present another challenge for the company. Intra-group receivables have risen sharply, tightening liquidity precisely when ACC needs to push capital expenditure and optimize costs. While the company expects this receivables-led strain to reverse in Q3FY26, persistent issues could limit ACC's flexibility to pursue aggressive capital expenditure plans.
Market analysts suggest that a reset in working-capital discipline combined with a clearer push on integrated capacity over the next 12-18 months could shift investor sentiment favorably. Until then, the Street appears to be taking a cautious approach toward ACC's stock despite its recent quarterly performance.
