Maintain ADD on Ambuja Cements - All-time high EBITDA margin; north expansion in sight - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities and Mr. Saurabh Dugar, Institutional Research Analyst, HDFC Securities

We maintain ADD on Ambuja Cements (ACEM) with a revised target price of INR 400/share (SOTP based). In Q2CY21, ACEM delivered its best-ever consolidated EBITDA margin - INR 1,495/MT (+11/5% QoQ/YoY). Robust pricing and continued cost controls moderated the impact of lower sales QoQ. Thus, standalone net sales/EBITDA declined 7/2% QoQ to INR 33.7/9.6bn (+55/61% YoY on a low base) respectively. APAT grew 9% QoQ on dividend income from ACC. We expect the commissioning of Rajasthan plant in Q3CY21 to accelerate volume growth CY22E onwards.

CY21Q2 performance: ACEM reported an all-time-high operating margin in Q2CY21 of INR 1,495/MT (+11/5% QoQ/YoY). Robust pricing gain (+5% QoQ) and healthy cost controls (opex rose a modest 3% QoQ) buoyed the operating margin. Amidst rising fuel prices and lower utilisation (QoQ), continued cost controls moderated the inflation. During H1CY21, Ambuja spent INR 5bn towards the ongoing expansion. At the end of Jun'21, its working capital increased by ~INR 7bn vs Dec'20, which is seasonal in nature.

Outlook: Ambuja noted that its Rajasthan project (3.0/1.8mn MT clinker/cement) will be operational in Q3CY21. It also announced a 1.5mn MT brownfield SGU in Punjab. Additionally, Ambuja is adding 54MW WHRS EBITDA % 6.8 4.3 across three locations and wet fly-ash dryer across four locations, which will aid opex control, going forward. We upgrade our EBITDA estimates for CY21/22/23E by 7/4/5% respectively, factoring in robust pricing trend and good cost controls. We maintain our ADD rating on the stock with a revised TP of INR 400/share (SOTP based). We value the standalone cement business at 14x its Jun'23E EBITDA and its 50.05% holding in ACC at a 20% discount to our target market capitalisation for ACC.

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs. 408.8 as compared to the previous close of Rs. 408. The total number of shares traded during the day was 265244 in over 4507 trades.

The stock hit an intraday high of Rs. 413.9 and intraday low of 401.55. The net turnover during the day was Rs. 108432414.

Source : Equity Bulls

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