A Forgettable Quarter
Ambuja Cement's (ACEM) Q3CY10 results were marginally below our estimate with a net profit of Rs1.5bn as against our estimate of Rs1.75mn. Volumes were almost flat YoY, however dip in realisations led to a 900bps contraction in margins to 19.1%. With strong monsoons affecting demand, average realisations declined by 5.2% YoY to Rs3,612/mt.
Outlook: We have marginally lowered our volume estimates for CY10 to 20mn mt accounting for the ongoing standoff. We expect a volume growth of 12% in CY11 to 22.4mn mt. Due to downward revision in volumes as well as pressure on margins we have reduced our earnings estimate for CY10 and CY11 by 9% and 2% to Rs8.8 and Rs11.3 respectively.
VALUATIONS AND RECOMMENDATION
The stock is currently trading at 6.6x CY11E EV/EBITDA and EV/mt of USD142. We downgrade our recommendation on the stock to 'HOLD' with a price target of Rs140, which implies CY11E EBITDA of 6.5x.