Maintain BUY on Ambuja Cements - Strong cost controls + healthy realisation - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

Ambuja delivered earnings beat in 2QCY20 as other expenses fell sharply, cushioning the impact of the COVID-led revenue loss. Standalone revenue/EBITDA fell 27/15% YoY to Rs 21.77/5.95bn. Dividend income from ACC, however, buoyed APAT by 10% to Rs 4.53bn. Volume fell 29% YoY, mainly on the large sales loss in April. However, execution of pent-up retail demand drove flattish volume growth in May/Jun. We expect continued traction in retail sales to yield slower volume decline of 10% in 2HCY20 vs the 19% YoY fall in 1H. We expect buoyant pricing in north markets, subdued energy cost outlook and healthy cost controls, to drive 8% EBITDA CAGR (CY19-22E). We maintain BUY with a revised target price of Rs 230.

2QCY20 highlights: The sales loss in April and continued demand slump in Maharashtra led to 29% YoY volume decline. This implies that Ambuja registered a slight volume growth in May/Jun (ex-Maharashtra), despite COVID. A 6% QoQ price rise drove up NSR +2% YoY. Unitary opex fell 3% YoY on lower freight cost and strong fixed cost cuts. Thus, unitary EBITDA went up 19% YoY to Rs 1,421/MT, cushioning the impact of lower sales.

Outlook: We expect the volume decline to slow down in 2HCY20E, and rebound in CY21E as demand normalises. Subdued petcoke and coal prices should also continue to support margin expansion. Enthused by healthy agile fixed cost controls seen in 1H, we lower our cost assumptions. Subsequently, we upgrade EBITDA estimates for CY20/21/22E by 12/5/5% respectively. Ambuja's upcoming north expansion should accelerate volume growth CY21 onwards. We maintain BUY with a revised SOTP of Rs 230/sh; we value standalone Ambuja at 11x its Jun'22E EBITDA and its 50% holding in ACC at a 20% discount to our target Mcap for ACC.

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.206.95 as compared to the previous close of Rs. 201. The total number of shares traded during the day was 644084 in over 8662 trades.

The stock hit an intraday high of Rs. 208.8 and intraday low of 202.05. The net turnover during the day was Rs. 132711925.

Source : Equity Bulls

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