Ambuja Cements - 4QCY16 Result Update - Better Operating Performance on Higher Realizations - Reliance Securities

Ambuja Cements (ACL) has reported a better-than-estimated operating performance in 4QCY16 on the back of healthy realization. EBITDA came in at Rs2.95bn way above our estimate of Rs2.23bn, while sales volume stood at 5.09mnT (-7.8% YoY +11.1% QoQ). Average realization/tonne rose by 1% YoY to Rs4,316 (-1.4% QoQ) vs. our estimate of Rs4,240. Higher composition of trade segment sales led to better than estimated realization. Despite 12% QoQ surge in power & fuel cost/tonne, operating cost/tonne broadly remained under control (+0.5% YoY and -1.1% QoQ) owing to sequential decline in freight cost/tonne and other expenditure/tonne. EBITDA/tonne came in at Rs579 vis-?-vis Rs551 and Rs603 in 4QCY15 and 3QCY16, respectively. Consistent deterioration in volume growth signifies that ACL has been losing market share to other players, which is a prime concern for the stock, in our view.We cut EBITDA estimates by 15% and 18% for CY17E and CY18E, respectively mainly to factor in subdued sales volume, and downgrade our recommendation on the stock to HOLD from BUY with a revised Target Price of Rs255.

Sales Volume Continues to Remain Subdued

Continuing to remain dismal, ACL''s sales volume declined by 7.8% YoY to 5.09mnT (albeit up 11.1% QoQ on low base post monsoon). An absence of demand pick-up in Western markets along with no big capacity addition for last couple of years by ACL impacted its volume growth. Looking ahead, we expect its sales volume to improve on the back of likely demand revival in Western markets.

Operating Performance Exceeds Our Estimate

While EBITDA came in at Rs2.95bn (vs. our estimate of Rs2.23bn). Average realization/tonne rose by 1% YoY to Rs4,316 (-1.4% QoQ) vs. our estimate of Rs4,240. EBITDA/tonne came in at Rs579 vis-?-vis Rs551 and Rs603 in 4QCY15 and 3QCY16, respectively. PAT surged by 60% YoY to Rs1.76bn mainly on account of better operating performance and lower tax.

Outlook & Valuation

We believe that successful completion of group restructuring and likely improvement in operating synergies will augur well for ACL in the long-term. However, we are concerned about its ability to register a strong volume growth due to absence of new capacity and consistent loss of market shares to others. Trimming down our EBITDA estimates by 15% and 18% for CY17E and CY18E, respectively on subdued sales volume, we downgrade our recommendation on the stock to HOLD from BUY with a revised SOTP-based Target Price of Rs255.

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.231.9 as compared to the previous close of Rs. 233. The total number of shares traded during the day was 127012 in over 1734 trades.

The stock hit an intraday high of Rs. 234.6 and intraday low of 231. The net turnover during the day was Rs. 29556864.

Source : Equity Bulls

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