Maintain Neutral on Ambuja Cements - Motilal Oswal

AMBUJA CEMENT 4QCY10: Below est led by lower realizations; Lower tax boosts PAT; Upgrading EPS; Maintain Neutral

Volumes grew 5.6% YoY to 5.04mt (in-line). Realizations declined 1.3% QoQ (~4.5% YoY) to Rs3,549. Net sales were flat YoY to Rs17.9b; PAT grew by 4%.

EBITDA de-grew 28% YoY (~11% QoQ growth) to Rs3.15b (v/s est Rs3.6b) and margins declined 690bp YoY (~50bp QoQ) to 17.6% (v/s est 19.3%).

Declared final dividend of Rs1.4/share (total of Rs2.6/share for CY10). Cost push in form of energy (~5% QoQ) was negated by operating leverage.

It has entered into agreement with Raj State Industrial Development & Investment Corporation to set-up a 2.2mt clinker unit in Rajasthan with capex of ~Rs22b.

2HCY10 is expected to be bottom-of-the-cycle period for the cement industry. Cement prices are expected to buoyant in 1HCY11 driven by recovery in demand. With full benefit of cost savings from new capacities and CPP now reflecting in its performance, Ambuja is expected to perform in-line with the industry. Stock trades at premium valuation of 14.4x CY11E EPS, 8.4x EV/EBITDA and US$138/ton. Maintain Neutral with target price of Rs146.

Source : Equity Bulls

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