Ambuja Cements - Robust performace - 1QCY20 Result Review - HDFC Securities

Ambuja reported a healthy 1QCY20 standalone result. While Rev declined 3% YoY to Rs 28.3bn (on sales loss in late Mar, led by nationwide lockdown to curb Covid-19 impact), robust realisation and flat opex drove EBITDA/APAT up by 30/6% YoY to Rs 6.0/4.0bn resp. We expect continued lockdown post 1Q, and slower ramp-up 3QCY20 onwards to pull down CY20E volumes by 15% YoY. However, robust realisation base and falling energy costs should bolster margin expansion. We maintain BUY with unchanged TP of Rs 210/sh.

Lower utilisation but NSR remains firm: Sales vol in 1QCY20 declined 10/12% YoY/QoQ to 5.8mn MT, mainly led by Covid-19 lockdown during Mar end. Aided by its large presence in the north/Gujarat markets, its NSR remained firm at Rs 4,909/MT (+7/2%YoY/QoQ).

Robust pricing, stable opex bolsters margin to Rs 1,047/MT: Ambuja's 1QCY20 unitary opex rose 2% QoQ (flat YoY) to Rs 3,862/MT, led by lower fuel costs, and increased production efficiencies. Its unitary input costs fell 4/8% YoY/QoQ. Even unitary freight cost fell 1/5% QoQ/YoY on supply chain optimization and lower diesel prices. However, fixed costs per MT rose 12/6% YoY/QoQ on lower utilisation, thus offsetting the benefits of lower energy costs. Amid flat opex, robust NSR drove up unitary EBITDA by 44% YoY to Rs 1,047/MT (its higher margin in Mar-qtr since 1QCY12)!

EBITDA/APAT up 30/7% YoY: Despite volume decline, strong margin buoyed EBITDA by 30% YoY. Below EBITDA, other income almost halved as the planned dividend income from ACC on 27th Mar could not be booked owing to delay in scheduled AGM. Eff tax rate remained flat YoY/QoQ at 25%. Thus, APAT grew at slower pace of 6% YoY.

Maintain BUY: We model in 15% volume decline in CY20, owing to sales loss due to lockdown impact during 1Q/2QCY20 and slower sales pick-up thereafter. Ambuja's clinker/grinding expansions in north by 18/6% to 21/31mn MT is expected to be operational by 1QCY21E. This should drive 12% volume CAGR during CY20-22E, in our view. Sustenance of healthy NSR in the north/Gujarat regions and falling energy costs should further bolster EBITDA margin to ~Rs 990/MT in CY22E from ~Rs 900/MT in CY19 (already at 7-yr high). We maintain BUY on the stock, with a TP of Rs 210/sh (SOTP based: we value standalone biz at 10x its Mar'22E EBITDA and Ambuja's 50% holding in ACC at 20% disc to our target Mcap for ACC). Our TP implies replacement valuation of Rs 8.2bn/MT of capacity (similar to its 10-yr historical mean).

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.169.5 as compared to the previous close of Rs. 168. The total number of shares traded during the day was 188564 in over 3153 trades.

The stock hit an intraday high of Rs. 170.7 and intraday low of 165.65. The net turnover during the day was Rs. 31966387.

Source : Equity Bulls

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