Ambuja Cements - Disappointment writ on all fronts - ElaraCapital

Falls short of expectation

Ambuja Cement numbers were below our and street expectations due to higher than expected costs. The company reported EBITDA of INR 5.1 bn v/s our estimates of INR 6 bn and adjusted net profit of INR 3.3 bn v/s our estimates of 3.8 bn. Revenues for the quarter fell by 3.4% YoY to INR 22 bn. EBITDA for the quarter declined by 31.2% YoY to INR 5.1 bn. Adjusted net profit witnessed a decline of 34.4% YoY to INR 4.9 bn on account of fall margins and revenues.

Subdued demand impacts volume; likely to persist going ahead

Total sales volumes (cement + clinker) declined by 3.6% YoY to 6 mn tonne due to weak demand and loss of market share. Going ahead, volume growth of the company will be muted as the capacity is unlikely to increase materially.

Realisations decline on lower prices in west

Realisations for the quarter fell by 0.5% QoQ(INR 22/ tonne) to INR 4,270/tonne due to fall in prices in the western region. Western region accounts for ~45% of the company's capacity. Total cost per tonne declined by 2.5% QoQ due to decline in power & fuel cost by 5.2% QoQ on account of softening in fuel prices. The EBITDA per tonne for the quarter stood at INR 859, as compared to INR 1,204 in Q1 CY12 and INR 794 in Q4CY12.

Valuations

At CMP of INR 189 the stock is trading at USD 175/tonne on CY14 capacity. We believe that going ahead, Ambuja is unlikely to command premium valuations as it has lost margin leadership and market share. We believe that company is unlikely to gain market share in near further due to capacity constraints. Thus, we maintain our Reduce rating on the stock.

Source : Equity Bulls

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