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On Tuesday, Morgan Stanley (NYSE:MS) downgraded the stock rating of ACC Ltd. (NSE:ACC:IN) from Equal-weight to Underweight, significantly reducing its price target to INR1,670.00 from the previous INR2,510.00. Stifel analysts cited concerns about the company's growth prospects in comparison to its peer, Ambuja, which is expected to see the majority of new capacity expansions.
The downgrade reflects Morgan Stanley's view that ACC may struggle to grow organically on its own. The analysts believe that ACC's potential is limited except for Master Service Agreements (MSAs) among group companies. This assessment has led them to favor Ambuja for investment in the group's cement business narrative.
Morgan Stanley's revised price target represents a substantial decrease from the earlier target, indicating a more conservative outlook on ACC's valuation. The firm's analysts have suggested that the competitive edge within the industry is shifting, potentially impacting ACC's market position.
The downgrade announcement comes amid a period where capacity expansion and strategic growth are critical for cement companies. Morgan Stanley's position indicates a preference for companies with clear paths to expansion and growth.
In their commentary, Morgan Stanley analysts explained their rationale for the downgrade, stating, "We downgrade ACC to Underweight from Equal-weight, as we believe ACC will become marginalized vs. Ambuja as the majority of new capacity expansion is happening at Ambuja, and except for MSA agreements among group companies, we see limited organic growth potential for ACC on a standalone basis. We prefer to play the group cement business story via Ambuja directly, and hence move to UW on the stock." This statement underscores the firm's strategic shift in focus towards Ambuja over ACC within the cement sector.
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