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Subdued performance; to improve ahead
3QCY10 results. Ambuja’s net profit declined 44% yoy, lower than
our and consensus estimates. Decline in realizations and increase in
power & fuel cost led to the drop. We estimate CY11 earnings to be
strong, driven by recent price recovery, savings on clinker purchase
and strong volume growth. Maintain Buy.
Realizations decline 10% yoy. Realisation fell 10% yoy and 6% qoq
to ~`3,595/ton. Cement dispatch volumes rose 7% yoy to 4.35m
tons (down 19% qoq). Domestic volumes increased 7.6% yoy, while
exports declined 32% yoy.
EBITDA/ton nose-dives 39% yoy. EBITDA/ton, at `650, fell
39% yoy and 42% qoq mainly due to a drop in realisations. The
benefit of lower raw material cost (down ~`300/ton yoy due to no
clinker purchases) was offset by higher power & fuel cost at `1,025/
ton (up ~`265/ton due to higher clinker production and fuel prices).
‘Other expense’ at `780/ton (up ~`100/ton) increased due to higher
maintenance and selling & distribution cost.
Outlook. New clinker units at Chhattisgarh and HP have achieved
50% utilisation levels. Two grinding units (Maratha & Bhatapara) will
commence by 4QCY10, taking capacity to 27m tons. A transporters’
strike at its HP plants (3.1m tons) since 7th Oct, stalled production
and dispatches. Ambuja expects demand to pick up towards the yearend.
It expects medium-term demand and realisations to improve.
Valuations. At our target price of `148, the stock would trade at
7.5x CY11 EV/EBITDA, in line with its ten-year average. The target
price implies a PE of 14x CY11 and an EV/ton of US$160.
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