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Key highlights
Ambuja Cements’ (ACEM) Q4CY10 earnings of Rs2.1bn (-11% yoy) were sharply below estimates (Rs2.6bn), driven
mainly by lower realizations.
Net sales increased by a marginal 1% yoy to Rs17.9bn, as a 12% yoy growth in volumes was offset by a 10% decline in
net realizations. Domestic cement volumes increased by 4% yoy to 4.91m tonnes, while exports fell 33% yoy to 500,000
tonnes. Additionally, the company sold 340,000 tonnes of clinker during the year (most of it in Q4CY10). Clinker sales
were made primarily from the company’s HP plant, where, due to a transport strike, clinker could not be moved to
grinding units in Punjab.
Net realizations fell by 10% yoy and Rs257/tonne sequentially to Rs3,338/tonne, led by weak cement prices across the
company’s key markets in the northern and central regions. Weighted average realizations also fell due to sales of
relatively lower-value clinker during the quarter.
As a result of a reduction in clinker production due to inventory built up post the transporters’ strike, power and fuel
costs increased lower than estimated (down Rs185/tonne qoq). While the disruption in inter-unit clinker movement
required ACEM had to purchase clinker for its grinding units in Punjab, lower market prices of clinker helped keep
raw material costs flat qoq. As a result, the decline in EBITDA relative to realizations was lower and fell by Rs65/tonne
to Rs586/tonne. Overall EBITDA fell by 27% yoy to Rs3.1bn, sharply below our estimate of Rs4.3bn.
The implied effective tax rate for the quarter was 18.1%, led by year-end tax adjustments. The overall tax rate for CY10
was 26.6%.
ACEM ended CY10 with an installed capacity of 25mtpa, post the completion of clinker capacity expansions at its
Bhatapara (Chhattisgarh) and Rauri (Himachal Pradesh) plants and commissioning of grinding units at Dadri (Uttar
Pradesh) and Nalagarh (Himachal Pradesh). In CY11, the company is expected to commission additional grinding
capacity of 2mtpa at its Bhatapara and Maratha (Maharashtra) units, taking total capacity to 27mtpa by end-CY11.
Valuations & View
We have downgraded our CY11 earnings estimates by 9% to Rs7.2/share, mainly due to assumptions of a lower-thanexpected
increase in net realizations and rising cost pressures, especially power and fuel (particularly imported coal).
We introduce our CY12 earnings estimates at Rs7.7/share.
After seeing some pressure towards end-December 2010, cement prices have again been rising since mid-January 2011.
However, we do not see these price hikes sustaining as cement demand continues to remain weak, while higher supplies
from large capacity additions keep utilization levels low. The pressure on realizations, coupled with increasing cost
pressures, is unlikely to drive any material improvement in profitability in the medium term. So we expect the company
to see a 9% decline in earnings in CY11 despite volume growth of ~10%. Hence, despite a ~17% price correction over the
past three months (v/s a Sensex correction of ~10%), we believe the stock is still expensive at current valuations of 17.5x
CY11E PER, 9.7x CY11E EV/EBITDA and EV/tonne of US$137. We maintain our Underperformer rating with a 12-month
target price of Rs100/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key highlights
Ambuja Cements’ (ACEM) Q4CY10 earnings of Rs2.1bn (-11% yoy) were sharply below estimates (Rs2.6bn), driven
mainly by lower realizations.
Net sales increased by a marginal 1% yoy to Rs17.9bn, as a 12% yoy growth in volumes was offset by a 10% decline in
net realizations. Domestic cement volumes increased by 4% yoy to 4.91m tonnes, while exports fell 33% yoy to 500,000
tonnes. Additionally, the company sold 340,000 tonnes of clinker during the year (most of it in Q4CY10). Clinker sales
were made primarily from the company’s HP plant, where, due to a transport strike, clinker could not be moved to
grinding units in Punjab.
Net realizations fell by 10% yoy and Rs257/tonne sequentially to Rs3,338/tonne, led by weak cement prices across the
company’s key markets in the northern and central regions. Weighted average realizations also fell due to sales of
relatively lower-value clinker during the quarter.
As a result of a reduction in clinker production due to inventory built up post the transporters’ strike, power and fuel
costs increased lower than estimated (down Rs185/tonne qoq). While the disruption in inter-unit clinker movement
required ACEM had to purchase clinker for its grinding units in Punjab, lower market prices of clinker helped keep
raw material costs flat qoq. As a result, the decline in EBITDA relative to realizations was lower and fell by Rs65/tonne
to Rs586/tonne. Overall EBITDA fell by 27% yoy to Rs3.1bn, sharply below our estimate of Rs4.3bn.
The implied effective tax rate for the quarter was 18.1%, led by year-end tax adjustments. The overall tax rate for CY10
was 26.6%.
ACEM ended CY10 with an installed capacity of 25mtpa, post the completion of clinker capacity expansions at its
Bhatapara (Chhattisgarh) and Rauri (Himachal Pradesh) plants and commissioning of grinding units at Dadri (Uttar
Pradesh) and Nalagarh (Himachal Pradesh). In CY11, the company is expected to commission additional grinding
capacity of 2mtpa at its Bhatapara and Maratha (Maharashtra) units, taking total capacity to 27mtpa by end-CY11.
Valuations & View
We have downgraded our CY11 earnings estimates by 9% to Rs7.2/share, mainly due to assumptions of a lower-thanexpected
increase in net realizations and rising cost pressures, especially power and fuel (particularly imported coal).
We introduce our CY12 earnings estimates at Rs7.7/share.
After seeing some pressure towards end-December 2010, cement prices have again been rising since mid-January 2011.
However, we do not see these price hikes sustaining as cement demand continues to remain weak, while higher supplies
from large capacity additions keep utilization levels low. The pressure on realizations, coupled with increasing cost
pressures, is unlikely to drive any material improvement in profitability in the medium term. So we expect the company
to see a 9% decline in earnings in CY11 despite volume growth of ~10%. Hence, despite a ~17% price correction over the
past three months (v/s a Sensex correction of ~10%), we believe the stock is still expensive at current valuations of 17.5x
CY11E PER, 9.7x CY11E EV/EBITDA and EV/tonne of US$137. We maintain our Underperformer rating with a 12-month
target price of Rs100/share.
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