Ambuja Cements - 4QCY21 Result Update - Cost Pressure Led to EBITDA Miss

Ambuja Cements (ACEM) reported a performance miss despite resilient realizations, mainly due to a steeper-than-expected jump in input costs. EBITDA (excluding other operating income of Rs561mn) stood at Rs5.12bn (-29% YoY and -22% QoQ), below our estimate of ~Rs6.69bn. EBITDA/tonne stood at Rs731 vs. Rs1,028 in 4QCY20 and Rs1,063 in 3QCY21. Notably, a sharp 11% QoQ jump in operating cost/tonne at Rs4,525 (+16% YoY) resulted in lower operating profit. The surge in fuel prices led to a steep 27% sequential increase in input costs/tonne (RM+P&F) to Rs2,139 (+30% YoY), while higher packaging costs led to a 9% QoQ jump in other expenditure/tonne. Network optimization enabled to see a 3% YoY and 6% QoQ drop in freight cost/tonne during the quarter. Overall operating cost/tonne was higher by Rs280/tonne compared to our estimate. Average realization/tonne remained resilient and increased modestly by 2% QoQ to Rs5,256 (vs. our estimate of Rs5,250), as the focus on premium products and high value-added products aided average realization. Sales volume increased by 13% QoQ to 7mnT (flat YoY), against our estimate of 6.7mnT. APAT fell 36% YoY and 28% QoQ to Rs3.17bn, below our estimate of Rs4.11bn. As per management's estimates, the company is accruing Rs300/t of benefit on account of its ICAN initiative. Going forward, incremental efficiencies are expected to be brought in through WHR/RE capacities (25-28% of energy from WHR), ramp-up in AFR usage (target of 25%) and increased blending. Further, the management has laid down the roadmap to 50MTPA capacity, with 7MTPA of capacity expansion in East in Phase 1 (expected by mid-CY24). We reduce our CY22E/CY23E EBITDA estimates by 6%/8% factoring the sharp cost increase, while raising our capex estimate. Keeping the target multiple unchanged for CY23E at 14x for the standalone business, we maintain our BUY rating on the stock, with a revised 1-year SOTP-based Target Price of Rs415 (from Rs445 earlier).

Higher Input Costs Weighed on Margins

Strong sequential sales volume and steady realization were completely overshadowed by a sharp 27% sequential jump in input costs/tonne to Rs2,139 (+30% YoY). Additionally, higher packaging costs led to a 9% QoQ increase in other expenditure/tonne. Hence, EBITDA fell by 29% YoY to Rs5.12bn (-22% QoQ), missing our estimate of ~Rs6.69bn. Going forward, higher fuel costs will remain a key overhang for the industry, including ACEM. We estimate ACEM's EBITDA/tonne at Rs1,105/Rs1,191 in CY22E/ CY23E.

Next Leg of Expansion to Address Growth Concerns

ACEM's Marwa-Mundwa expansion - 3MTPA clinker and 1.8MTPA grinding capacity - was commissioned in Oct'21 and is ramping up well. The company is now working on a brownfield expansion of 1.5MTPA grinding unit in Ropar, Punjab. Further, it has announced a 7MTPA brownfield expansion through a mix of clinker and split grinding unit in East for a capex of Rs35bn. These projects would increase ACEM's capacity to 40MTPA by CY24, keeping it on track to reach 50MTPA capacity by CY25-CY26.

Outlook & Valuation

ACEM has been strategic to address the capacity constraint issues by commissioning the Nagaur integrated unit, which can support a capacity up to 5mnT. Also, it has already got an approval for a brownfield expansion of 1.5mnT cement grinding unit in Ropar, Punjab. Further, it has announced a 7MTPA brownfield expansion through a mix of clinker and split grinding unit in East for a capex of Rs35bn. These certainly bode well from a long-term perspective. However, factoring a sharp cost increase, we reduce our EBITDA estimates by 6%/8% for CY22E/CY23E. We raise our capex estimate, thus effecting our EV. Keeping our target multiple unchanged for CY23E at 14x, we maintain our BUY rating on the stock, with a revised SOTP-based 12-month Target Price of Rs415 (from Rs445 earlier).

Link to the report

Shares of Ambuja Cements Limited was last trading in BSE at Rs. 337.40 as compared to the previous close of Rs. 339.00. The total number of shares traded during the day was 205473 in over 4785 trades.

The stock hit an intraday high of Rs. 338.35 and intraday low of 331.05. The net turnover during the day was Rs. 68689452.00.

Source : Equity Bulls

Keywords

AmbujaCements INE079A01024 Q4CY21 ResultUpdate RelianceSecurities