Ambuja Cement - Rising cost pressure amid slowdown... - ICICIDirect

Ambuja Cement's Q4CY12 numbers were lower than our estimates. Revenues remained flat at Rs.2313 crore (our estimate: Rs.2513 crore) while PAT declined ~35% YoY to Rs.212 crore (our estimate: Rs.341 crore) led by muted growth in realisation and decline in cement volumes. As a result, EBITDA/tonne also remained lower at Rs.837/tonne (vs. I-direct estimate of Rs.975/tonne). It was up 4.7% YoY and down 23.7% QoQ due to higher freight (up 5.6% QoQ) and employee costs (up 8.5% QoQ) and low realisations (down 2.4% QoQ). Volumes improved marginally QoQ due to end of monsoons. However, on a YoY basis, it declined 2.5% to 5.14 MT (I-direct estimate: 5.47 MT) due to sluggish demand from construction & infra activities. This along with increase in freight and employee costs led to topline & bottomline de-growth of ~0.7% and ~35%, respectively.

Volume remains tepid; cost pressure rises

During the quarter, sales volumes declined 2.5% YoY to 5.14 MTPA due to sluggish demand from construction activities. Moreover, the cement realisation of Rs.4501/tonne also remained lower than estimates at Rs.4594/tonne. Realisation improved marginally by 1.8% YoY as the rise in input costs led to price hikes by manufacturers. Total costs increased ~9.8% YoY, led by a rise in freight and power & fuel costs after a hike in railway freight rates & power tariffs. As a result, the EBITDA/tonne remained lower at Rs.837/tonne (vs. I-direct estimate: Rs.975/tonne).

Volume expected to grow at 6.8% CAGR (CY12-14E)

We expect an improvement in demand and utilisation rates in the north, central and western regions where the company has a strong foothold. We expect volume CAGR of ~6.8% during CY12-14E and realisation CAGR of ~5.4% during the same period. Though we expect a progressive improvement in margins and return ratios, concerns on CCI winning the case against the company on imposing penalty will continue to remain till the final verdict. On an EV/tonne basis also, the stock is trading at $147 on CY14E installed capacity of ~28.7 MT (~10% premium to the replacement cost). Hence, we maintain our HOLD rating on the stock with a target price of Rs.210/share (i.e. at $160/tonne).

Source : Equity Bulls

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