Ambuja Cement - Bucking the trend; Hold - Anand Rathi

We expect 6% and 23% yoy revenue and EBITDA growth, respectively, for Ambuja Cement (Ambuja), led by strong realisation growth. PBT is expected to grow a solid 20% yoy while PAT would decline 2% yoy due to a tax credit in 4QCY11. Key monitorables are the company's outlook on demand and the timeframe to commission fresh capacities. We have a Hold on the stock, with price target of Rs.207.

- Yoy dispatches flat. 4QCY12 dispatch growth is expected to be flat yoy (rising 18% qoq), to 5.54m tons, due to overall demand slackness in India. We estimate industry dispatches to have grown less than 1% in 4QCY12. Average realisation is expected to increase 6% yoy (down 3% qoq) to Rs.4,470 a ton. Accordingly, revenue is estimated to rise 6% yoy (and 14% qoq).

- Strong EBITDA growth. Ambuja is one of the low-cost and fuelefficient producers of cement in the country. Less-than-industry realization pressure is estimated to result in EBITDA/ton of Rs.935, against Rs.760 in 4QCY11 and Rs.1,205 in 3QCY12. We expect EBITDA to rise 23% yoy (declining 8% qoq).

- PAT to dip 2%; PBT to grow 20%. Net profit is expected to decline 2% yoy (and 9% qoq) due to a tax credit in 4QCY11. PBT however is expected to grow a solid 20% on the back of strong EBITDA growth (declining 10% qoq, however).

- Valuation. The company's profit is one of the highest, and its balance sheet one of the most de-leveraged, in the industry. However, capacity constraints, stagnant RoE and high valuations are headwinds. Net cash of Rs.19 a share in Dec'11 is expected to climb to Rs.31 by Dec'13. At our price target of Rs.207, the stock would trade at 9x CY13e EV/EBITDA. The target price implies an EV/ton of US$175 and a PE of 16x. Risks. Hike in coal price or in technology/knowhow fees to Holcim.

Source : Equity Bulls

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