Buy Ambuja Cements In line performance, CY11 to be better; Anand Rathi

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Ambuja Cements
In line performance, CY11 to be better; maintain Buy
Ambuja Cements’ PAT was higher than estimated; declining 14%
yoy due to tax write-back; but PBT was in line. Drop in realization
and rise in fuel cost led to yoy dip in EBITDA per ton. We expect
CY11 earnings to be strong, driven by price recovery over Jan-Feb
’11 and savings on clinker purchase. We reduce our CY11e net profit
by 4% and target price to `144 from `148. Maintain Buy.

 Realization declined 3.5% yoy and 1.3% qoq to `3,550/ton.
Cement sales rose 4.5% yoy to 5m tons (up 16% qoq). Cement prices
have risen up to `30 per bag YTDCY11, across regions and would
drive profitability in CY11.
 EBITDA/ton drops 32% yoy and 4% qoq to `625, due to drop in
realization and rise in fuel cost. Benefit of lower raw material cost
(down `180/ton yoy due to lower clinker purchases) was offset by
higher power & fuel cost at `900/ ton (up `210/ton on higher
clinker production and fuel prices). Ambuja incurred `245m cost in
4QCY10 for clinker purchases due to a 6-week shutdown of plants at
Himachal Pradesh due to strike by transporters. PAT was higher than
estimated owing to tax write-back (`371m) related to earlier years.
 Expansion & outlook. Two grinding units (Maratha; Bhatapara) will
commence in beginning-CY11, boosting capacity to 27m tons.
Ambuja expects price instability and cost pressure in the short term
and demand growth to be strong in the long term.
 Valuation and risks. At our target price of `144, the stock would
trade at 8x CY11 EV/EBITDA. Our target price implies PE of 14x
CY11 and EV/ton of US$155. Key risk: Decline in realization.