Reduce Ambuja Cements - Geojit BNP Paribas

Maintain 'reduce' rating on Ambuja Cements - TP Rs.129

- The company has reported better than expected results for 1QCY12

- EBITDA at Rs.770 crore is better than analysts' estimates.

- Recurring net profit at Rs.510 crore is also better than expectations of the street.

- Company has managed to reduce raw material and other expenses. Operating cost for 1QCY12 at Rs.3122 /ton is lower than market estimates.

- Average sales price /ton at Rs.4353 have increased 4% qoq and 9%yoy.

- EBITDA at Rs.1276/ton sharply increased 58% qoq due to significant decline in raw material and other expenses qoq.

- While cement demand is showing signs of improvement, cost pressures still exist for Ambuja and the industry in the form of increase in coal and diesel prices.

- A negative ruling by the Competition Commission of India in the ongoing investigation of cartelisation by Indian cement industry could also lead to de-rating of valuation multiples.

- Hence, reduce rating is maintained on the stock despite its better performance for the latest quarter.

- Higher-than-expected cement realisations and a decline in imported coal costs are key upside risks to the target price.

Source : Equity Bulls

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