Ambuja Cements - Premium profitability to dilute, valuations rich; Downgrading to Neutral - Motilal Oswal

Potential capacity constraints and royalty uncertainty risk to CY15 EPS

- Lack of timely capacity addition could constrain Ambuja Cements' (ACEM) growth in CY14-15, if demand growth is higher than estimated 8% CAGR for ACEM.

- Increase in royalty will hurt CY13E/14E EPS by 3-4%; further upward revision post CY14E not ruled out.

- ACEM's superior profitability is diluting as peers catch up and ACEM specific cost-push translate into slower EPS growth.

- At an EV of 7.9x CY14E EBITDA and USD162/ton, current valuations factor ACEM's cost leadership and superior profitability. Downgrade to Neutral on likely operational underperformance. Our preferred pick is UltraTech/Grasim and Shree Cement.

Source : Equity Bulls

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