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Stock Report
Ambuja Cements - New expansion to aid volume visibility - ICICI Securities
Posted On : 2022-02-21 10:46:50( TIMEZONE : IST )
We hosted Neeraj Akhoury - CEO Holcim India and MD and CEO, Ambuja Cements (ACEM) and Rajani Kesari - CFO Holcim India and CFO of ACEM for the second consecutive annual earnings call. Key takeaways include: a) Holcim group remains committed to invest in India - both in terms of adding capacities as well as improving cost efficiencies / ESG, b) ACEM is targeting to increase capacities to 50mnte in medium term from the current 31.5mnte; c) it announced 7mnte new expansion at a capex of Rs35bn, to be operational by H2CY24; d) it expects to achieve further cost savings (already achieved >Rs300/te over CY19-21) via cost efficiency programme 'I can' and increased synergies via MSA with ACC.
However, factoring higher cost escalations, we reduce our CY22-23E EBITDA by 8-16% and cut our target price to Rs424/sh (earlier: Rs450/sh) based on 13xMar'24E EV/E. Maintain BUY. Key risks: Lower demand / pricing.
- Q4CY21 EBITDA at Rs5.7bn (down 26% YoY) was significantly below our / consensus estimates owing to higher costs escalations. Total cost/te grew sharply 8% QoQ (and 13% YoY) to Rs4,422/te while realisation remained flat QoQ (up 4% YoY) resulting in EBITDA/te declining 30% QoQ and 27% YoY to Rs794/te. Raw material and power and fuel cost/te rose 24% QoQ and 28% YoY to Rs2,090/te owing to sharp rise in fuel prices. Other expenses rose 23% QoQ and 19% YoY owing to higher marketing costs, maintenance costs and recent commissioning of North expansion. Freight cost/te was down 9% QoQ and 5% YoY due to reduction in lead distance and higher direct despatches.
- Standalone revenue rose 6% YoY to Rs36.8bn (I-Sec: Rs36.7bn). Volumes grew 16% QoQ and 2% YoY to 7.16mnte including clinker sales owing to commissioning of Marwa Mundwa expansion - higher than likely 3-4% YoY decline for the industry during Q3FY22. Realisation declined 0.6% QoQ (up 4% YoY) to Rs5,137/te as higher prices in the North were offset by lower prices in the East.
- 7mnte new expansion announced in East at a capex of Rs35bn addressing key investor concerns on volume growth. ACEM announced plans to set up 3.2mnte clinkerisation at the existing Bhatapara integrated plant with 7mnte potential grinding across the existing grinding units at Sankrail and Farakka and greenfield grinding unit at Barh, Bihar. The project is likely to be commissioned by H2CY24E.
- Medium-term ambition to increase capacities to 50mnte from the current 31.5mnte. 1.5mnte Ropar grinding unit is expected to be operational by mid-CY23E and above mentioned 7mnte Bhatapara expansion may be commissioned by H2CY24E, taking the total capacity to 40mnte. Besides, the company's future expansion plans may include brownfield expansion at Maharashtra and de-bottlenecking at various locations, taking total capacities to 50mnte in medium term.
- ACEM expects to achieve further cost savings (already achieved >Rs300/te over CY19-21) via cost efficiency programme 'I can' and increased synergies via MSA with ACC. ACEM plans to increase its WHRS capacity from the current 6MW to 60MW by Jun'22 and further to ~90MW by Dec'23. Similarly, the share of solar power is expected to rise to >10% by CY23E from the current 2%. This would translate into cost savings of >Rs2bn p.a. (~Rs70/te). Besides, other efficiency measures, including improving the blending ratio, higher direct despatches (currently 60%), source mix optimisation, fly-ash dryers, railway sidings at Rabriyawas, along with the MSA with ACC, could drive additional cost synergies, in our view. ACEM plans to increase the share of AFR from the current 5% to 15% in the medium-term.
- Standalone ACEM's net cash increased to Rs41.6bn from Rs29.2bn in CY20 after incurring capex of Rs11.4bn during CY21. Company has declared a higher dividend of Rs6.3/sh implying ~60% payout ratios and cash outgo of Rs12.5bn.
Shares of Ambuja Cements Limited was last trading in BSE at Rs. 338.30 as compared to the previous close of Rs. 359.40. The total number of shares traded during the day was 380785 in over 8869 trades.
The stock hit an intraday high of Rs. 355.00 and intraday low of 337.20. The net turnover during the day was Rs. 130359768.00.
