Maintain BUY on Ambuja Cements - Stellar show yet again; dividend bonanza announced - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

During 3QCY20, Ambuja Cements (ACEM) reported strong results. Standalone net sales/EBITDA/APAT rose 9/55/88% YoY to Rs 28.53/6.80/4.41bn respectively. Volumes jumped 8% YoY on strong retail demand. Opex fell 8% YoY on robust (and structural) cost controls and low fuel prices, driving a 44% jump in unitary EBITDA to Rs 1,200/MT. In a positive surprise, ACEM announced Rs 17/share dividends, thus paying off 60% of its large cash pile up on books. We maintain BUY with a higher target price (SOTP-based) of Rs 283/share, owing to increased volume growth and robust unitary EBITDA visibility, and a leaner balance sheet, post the large dividend payout.

Strong 3QCY20 results, large dividend payout: Riding on robust retail demand in north, central and east markets, ACEM printed 8% YoY volume rise. NSR also remained solid at +1% YoY. Opex reduction accelerated to 8% YoY, benefitting from structural metrics (fixed cost controls, logistics optimization and Material Supply Agreement with ACC) and lower fuel prices. Thus, its unitary EBITDA soared 44% YoY to Rs 1,200/MT. It also announced Rs 17/share dividend (60% of its cash balance, 7% pre-tax yield).

Outlook: Buoyed by structural opex reduction and healthy pricing, we expect ACEM's unitary EBITDA to rebound to a 13-year high of Rs 1,176/MT in CY20E and to sustain during CY21/22E. Its upcoming expansion in Rajasthan by 2QCY21 will boost volume growth during CY21-23E. We raise our EBITDA estimates for CY20/21/22E by 6/7/6% factoring in the cost controls benefits. Robust margin, high growth visibility and leaner balance sheet (large dividend payout) should drive rerating. We raise our valuation multiple for standalone business to 12x Sep'22E EBITDA (earlier 11x), inline its 10-year mean. We value its 50% holding in ACC at a 20% discount, thus leading to a SOTP target price of Rs 283/share with a BUY rating.

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.253.85 as compared to the previous close of Rs. 253.4. The total number of shares traded during the day was 230041 in over 3502 trades.

The stock hit an intraday high of Rs. 255.45 and intraday low of 249.7. The net turnover during the day was Rs. 58154028.

Source : Equity Bulls

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