Ambuja Cements - Cement Sector Update - Karvy

Market share loss may continue till CY15E: Ambuja Cements has been consistently losing market shares over the last 5-6 quarters (in-line with its other large cap peers) on account of weak demand, lack of new capacity expansions while the smaller manufacturers have been adding capacities. We expect this trend to continue for Ambuja Cements as its upcoming expansion (4.5 mn MT) in Rajasthan will get commissioned by end of CY15E.

Margins hit multi-year low level: Its operational performance has also been hit over the last few quarters on account of surge in input & transport costs thereby leading to its operating margin contracting to multi-year low of 13.3%.

Return ratio to remain suppressed: Going forward, we expect Ambuja's sales volume to increase by 3.5% in CY14E after marginal decline of 0-1% in CY11-12E. We lower our CY13-14E EBITDA estimates by 4% YoY on account of the persisting weak demand in the northern & eastern regions. Subsequently, we expect Ambuja to deliver EBITDA CAGR of -3% and PAT CAGR of 1% during CY12-14E period. Weak profitability would contract its RoE to 11-14% during CY13-14E.

Valuation & Recommendation: We maintain our "SELL" recommendation on the stock with a TP of Rs150 valuing it at 9x its CY14E EBITDA. Factoring in the ACCAmbuja – Holcim deal impact on Ambuja's SOTP valuations, our target price implies a modest 10% holding company discount on ACC. This implies further downside in case of Ambuja's target price.

Source : Equity Bulls

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