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AC's 28% yoy drop in EBITDA (Rs284/mt drop) was driven by lower realisations (Rs146/mt
drop), and escalation in fuel costs (Rs205/mt). Even on a qoq basis EBITDA/mt was down. AC's
balance sheet remains very strong, with free cash generation of Rs14.6bn in FY10. Valuation
rich, maintain Sell.
4QFY10 EBITDA drop 28%, weaker than expected
Ambuja has reported an EBITDA of Rs3.14bn compared to our expectation of Rs3.84bn. It
recorded a cement volume sales growth of 5% yoy, however, cement realisations dropped by
3.9% yoy. Even on a qoq basis, the realisations were marginally down. The pricing weakness
in its key markets of North India and Gujarat have impacted realisations. Besides, the rising
cost of coal has increased its power & fuel costs on a qoq basis by 6.7%, and on a yoy basis
by 29.8% on per mt of cement produced basis. Hence, Ambuja has reported an EBITDA/mt of
Rs628/mt in 4QFY10, compared to Rs913/mt in 4QFY09, and Rs651/mt in 3QFY10.
Management also indicated that some one-off impact in the quarter due to dislocation it had
from the transporters at its Himachal plant in the results. The company imports 30% of its
coal, which averaged at US$110/mt in the quarter, compared to US$100/mt in 3QFY10. The
trends in 1QFY11 indicate that costs are even higher at US$120/mt.
Ambuja's cash flow generation and balance sheet remain very impressive
Ambuja has generated a free cash of Rs14.62bn in FY10. It has reduced loans by Rs1.01bn,
incurred capital expenditure of Rs4.93bn, and the balance has increased its liquid assets in
the balance sheet to Rs23.69bn. The company has commissioned 4.4mmt of clinker
expansion in FY10, and 3mmt of grinding cement capacity at Dadri, Himachal Pradesh and
Nalagarh, Himachal Pradesh, coupled with 63MW of captive power capacity.
We remain concerned on pricing and AC's valuations
While, there has been upward momentum in cement prices towards the end of 4QFY11, and
in January 2011, we believe the inherent risks to pricing exists. The industry is currently
operating at a utilisation rate of 75%, and hence, we expect cement prices to remain volatile.
Besides, with costs rising there would be pressure on margins on that count as well. AC has
reported an EPS of Rs8.28/ in FY10, compared to our expectation of Rs8.31, despite lower
EBITDA in 4QFY10, mainly due to lower taxation in 4QFY10 ( this was due to tax reversals
relating to earlier years). We expect a drop in EPS to Rs7.32 in FY11, and the stock is
expensive at US$150/mt on an EV/mt basis. We maintain our Sell rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
AC's 28% yoy drop in EBITDA (Rs284/mt drop) was driven by lower realisations (Rs146/mt
drop), and escalation in fuel costs (Rs205/mt). Even on a qoq basis EBITDA/mt was down. AC's
balance sheet remains very strong, with free cash generation of Rs14.6bn in FY10. Valuation
rich, maintain Sell.
4QFY10 EBITDA drop 28%, weaker than expected
Ambuja has reported an EBITDA of Rs3.14bn compared to our expectation of Rs3.84bn. It
recorded a cement volume sales growth of 5% yoy, however, cement realisations dropped by
3.9% yoy. Even on a qoq basis, the realisations were marginally down. The pricing weakness
in its key markets of North India and Gujarat have impacted realisations. Besides, the rising
cost of coal has increased its power & fuel costs on a qoq basis by 6.7%, and on a yoy basis
by 29.8% on per mt of cement produced basis. Hence, Ambuja has reported an EBITDA/mt of
Rs628/mt in 4QFY10, compared to Rs913/mt in 4QFY09, and Rs651/mt in 3QFY10.
Management also indicated that some one-off impact in the quarter due to dislocation it had
from the transporters at its Himachal plant in the results. The company imports 30% of its
coal, which averaged at US$110/mt in the quarter, compared to US$100/mt in 3QFY10. The
trends in 1QFY11 indicate that costs are even higher at US$120/mt.
Ambuja's cash flow generation and balance sheet remain very impressive
Ambuja has generated a free cash of Rs14.62bn in FY10. It has reduced loans by Rs1.01bn,
incurred capital expenditure of Rs4.93bn, and the balance has increased its liquid assets in
the balance sheet to Rs23.69bn. The company has commissioned 4.4mmt of clinker
expansion in FY10, and 3mmt of grinding cement capacity at Dadri, Himachal Pradesh and
Nalagarh, Himachal Pradesh, coupled with 63MW of captive power capacity.
We remain concerned on pricing and AC's valuations
While, there has been upward momentum in cement prices towards the end of 4QFY11, and
in January 2011, we believe the inherent risks to pricing exists. The industry is currently
operating at a utilisation rate of 75%, and hence, we expect cement prices to remain volatile.
Besides, with costs rising there would be pressure on margins on that count as well. AC has
reported an EPS of Rs8.28/ in FY10, compared to our expectation of Rs8.31, despite lower
EBITDA in 4QFY10, mainly due to lower taxation in 4QFY10 ( this was due to tax reversals
relating to earlier years). We expect a drop in EPS to Rs7.32 in FY11, and the stock is
expensive at US$150/mt on an EV/mt basis. We maintain our Sell rating.
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