Ambuja Cements Limited - Benefiting from one-offs - Antique

Ambuja Cements Limited (ACL) results for 1QCY13 were below our estimates. A 4.1% degrowth in volumes coupled with higher operational expenses resulted in reported EBIDTA of INR5.5bn against our estimate of INR6.5bn.

Despatches decline by 4.1% to 5.8mmt

While cement realisations were higher by only 0.9% YoY to INR4,388/mt, a 4.1% decline in despatches to 5.8mmt resulted in net sales declining by 3.5% to INR25.6bn. On a QoQ basis, realisations were lower by 2.5%.

Adjusted EBIDTA/mt declines by INR363 YoY to INR904

Reported EBIDTA declined by 28% to INR5.5bn on account of lower volumes coupled with higher operational expenses. However, adjusted for INR291m credit to certain expenses taken due to change in managements estimate in respect of recognition of CENVAT credit relating to earlier years, adjusted EBIDTA declined by 32% to INR5.24bn. Thus, the reported and adjusted EBIDTA/mt stood at INR954 and INR904 respectively, compared to INR1,266 achieved in 1QCY12. Higher other income coupled with lower tax rate (14.3% vs. 18%) helped the company post profits of ~INR4.9bn compared to INR3.1bn.

Update on capex plans

ACL augmented its capacity by 0.6mmt to 27.95mmt with the commissioning of a pre grinder at Bhatapara unit (Chhattisgarh). It has plans to increase the capacity at Sankrail (West Bengal) by 0.8mmt, which is expected to commission in 2HCY14e. It also plans a greenfield unit in Rajasthan, which will have a clinker capacity of 2.2mmt and grinding capacity of 4.5mmt.

Valuation and outlook

At the CMP of INR189, the stock trades at a PE and EV/EBIDTA of 17.5x and 9.3x, discounting its CY14e numbers. We believe that the current market price adequately factors the sectoral outlook and ability of the company to capitalise on the same. Hence, we maintain our HOLD recommendation with a target price of INR183 (earlier target price of INR199). The target price is based on 9x CY14e EV/EBIDTA discounting.

Source : Equity Bulls

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