Ambuja Cements Ltd: 3Q Results: IN-LINE rating:: Standard Chartered

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Ambuja Cements Ltd: 3Q Results
In 3Q 2010, Ambuja Cements posted a net profit decline of 52.2% yoy and revenue decline of 2.9% yoy. We believe that the Rs30/bag increase in the cement price since 2Q 2010 will more than make up for the decline in realisation and increase in cost. Given this, we maintain our estimates and IN-LINE rating.


Results: Key points
Revenue declines 15.3% yoy – Total income declined 15.3% yoy and 18.8% qoq to Rs17.6bn,
impacted by a 3.6% yoy fall in volume and a 12.2% fall in realisation. In our view, the main
culprits for this performance were the continuous monsoon rains that slowed down construction
activity (resulting in lower volume) and the shutdown of the Wadi II kiln.

High costs play dampener – Raw material cost (per ton) increased 54.1% yoy and 27.5% qoq,
driven by clinker purchases and inventory decrease of Rs561m. Other expenditure (per ton) was
up 26.6% yoy (up 6.4% qoq). Expenses of Rs450m for purchasing clinker further deteriorated the
performance. We expect 4Q to make up for the shortfall in 3Q and, hence, maintain our earnings
estimates.

Valuation: Reiterate OUTPERFORM – We value ACC at 15.4x 2011E earnings and 8.1x 2011E
EV/EBITDA. We reiterate OUTPERFORM and our price target of Rs1,123.