Ambuja Cements - PINC Result Review

Capitalising On Captive Clinker

Ambuja Cement's (ACEM) Q2CY10 performance was inline with our estimates as operating margins expanded by 320bps to 30.8%. In CY09, the company's performance was impacted by clinker constraint and high cost imported coal inventory. The company is now reaping benefits due to commissioning of its captive clinker capacity. Net profits grew by 20.5% YoY to Rs3.9bn.

Outlook: We maintain our earnings estimates for CY10 and CY11 at Rs9.7 and Rs11.5 respectively. Due to monsoons, we expect demand and realisations to remain soft during Q3CY10. Post which we are expecting a robust growth for the industry. ACEM, due to its recent capacity expansion, is well poised to benefit from this growth.

VALUATIONS AND RECOMMENDATION

The stock is currently trading at 5.1x CY11E EV/EBITDA and EV/mt of USD110. We maintain our 'BUY' recommendation on the stock with a price target of Rs140, which implies CY11E EBITDA of 6.5x.

Source : Equity Bulls

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