Neutral on Ambuja Cements - 4QFY2012 Result Update - Angel Broking

During 1QCY2012, Ambuja Cements (ACEM) reported a 23.4% yoy decline in its bottom line on account of one-off depreciation charge, as the company changed the depreciation method for captive power plants from straight line to written down method (excl. the extra depreciation charge, net profit would have grown by 23.2% yoy). The company's operational performance was impressive, with its top line growing by 19.3% yoy and OPM increasing by 80bp yoy. Top-line growth was on account of moderate 8.9% growth in realization and decent 9.6% improvement in volumes. We maintain our Neutral view on the stock.

OPM at 29.0%, up 80bp yoy: Higher raw-material, power and fuel and freight costs almost negated the entire growth in realization, thereby limiting margin expansion to only 80bp yoy. Power and fuel costs per tonne were higher by sharp 18.7% yoy due to the substantial 30% price hike carried out by Coal India in March 2011 (low base effect). Raw-material costs on a per tonne basis were also higher by 17.2% yoy. Further, freight costs per tonne increased by 7.9% yoy due to higher petroleum products costs and railway freight charges.

Outlook and valuation: We expect ACEM to register a 15.6% and 19.5% CAGR in its top line and bottom line, respectively, over CY2011-13E, mainly aided by a 9.4% CAGR in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$135 on CY2013E capacity, which we believe factors in the positives of a favorable locational presence. Hence, we continue to remain Neutral on the stock.

Source : Equity Bulls

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