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4QCY10 results
Ambuja’s 4Q Ebitda came much below our estimates at Rs3.1bn (-28% YoY) and
Ebitda margins declined to a five year low of Rs625/t. Pricing pressures in north
and east impacted realisations which declined 1% QoQ. Unit costs remained flat
sequentially, though we expect cost headwinds (energy) in the coming quarters.
We cut our EPS estimates by 5-7% as we marginally lower our realisation
estimates and revise up our imported coal price estimate (in-line with revisions by
our resources team). Maintain Sell (target px: Rs110/sh).
4Q performance below estimates mainly due to lower realisations
Ambuja’s 4Q Ebitda declined 28% YoY to Rs3.1bn which was 25% below our estimates.
Volumes (5mt; +3% YoY) as well as realisations (Rs178/bag; -1% QoQ) were below
our estimates. Overall expenses were slightly higher due to higher other expenses
(+12% QoQ); unit production costs (materials plus energy) rose 5% QoQ while freight
costs rose 3%. Ebitda margins came-in at a five year low of Rs625/t (-4%QoQ/-
30%YoY). Lower tax rates (17.6% cf. 28.5% in 9mCY10) however helped as decline in
net earnings was restricted at 9% to Rs2.2bn.
Management expects margin pressure in near-term; 3mt project announced
The management is cautious on its near-term outlook due to demand-supply
imbalance which would likely continue for the next few quarters and keep cement
prices under pressure. Rising input costs (fuel, freight) is also an area of concern and
margin pressure would therefore continue in the near-term. The management is
however upbeat on the long term cement demand potential and has also announced a
3mtpa capacity in north India (Rajasthan). We note that the company had completed
its announced expansions in 2010 which took up capacity to 25mt; on-going debottlenecking
would raise capacity to ~27mt during 1H-2011.
Cut EPS estimates by 5-7% as we lower our realisations, raise costs
We expect capacity pressures to continue over the next few quarters and despite
building in a demand pick up for the industry (11% in FY12), we expect operating rates
to remain sub-80% over the next few quarters. We marginally lower our realisation
estimates (R185/bag; -1% YoY). We also revise up our imported coal cost estimates to
US$125/t and US$115/t for CY11-12 (4-17% increase), in-line with revisions made by
our resources team. Recent rail freight hike (+4% in Dec; mix: 35%) would also
impact cost base from 1QCY11 onwards.
Maintain Sell; target px: Rs110/sh
We remain concerned on the sector fundamentals given rising capacity surpluses. The
stock has corrected 17% in the last three months and has underperformed the
markets by 6ppt. Current valuations (9x one year forward EV/Ebitda; US$140/t) do not
factor in weak fundamentals, in our view. Maintain Sell with a target px of Rs110/sh.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QCY10 results
Ambuja’s 4Q Ebitda came much below our estimates at Rs3.1bn (-28% YoY) and
Ebitda margins declined to a five year low of Rs625/t. Pricing pressures in north
and east impacted realisations which declined 1% QoQ. Unit costs remained flat
sequentially, though we expect cost headwinds (energy) in the coming quarters.
We cut our EPS estimates by 5-7% as we marginally lower our realisation
estimates and revise up our imported coal price estimate (in-line with revisions by
our resources team). Maintain Sell (target px: Rs110/sh).
4Q performance below estimates mainly due to lower realisations
Ambuja’s 4Q Ebitda declined 28% YoY to Rs3.1bn which was 25% below our estimates.
Volumes (5mt; +3% YoY) as well as realisations (Rs178/bag; -1% QoQ) were below
our estimates. Overall expenses were slightly higher due to higher other expenses
(+12% QoQ); unit production costs (materials plus energy) rose 5% QoQ while freight
costs rose 3%. Ebitda margins came-in at a five year low of Rs625/t (-4%QoQ/-
30%YoY). Lower tax rates (17.6% cf. 28.5% in 9mCY10) however helped as decline in
net earnings was restricted at 9% to Rs2.2bn.
Management expects margin pressure in near-term; 3mt project announced
The management is cautious on its near-term outlook due to demand-supply
imbalance which would likely continue for the next few quarters and keep cement
prices under pressure. Rising input costs (fuel, freight) is also an area of concern and
margin pressure would therefore continue in the near-term. The management is
however upbeat on the long term cement demand potential and has also announced a
3mtpa capacity in north India (Rajasthan). We note that the company had completed
its announced expansions in 2010 which took up capacity to 25mt; on-going debottlenecking
would raise capacity to ~27mt during 1H-2011.
Cut EPS estimates by 5-7% as we lower our realisations, raise costs
We expect capacity pressures to continue over the next few quarters and despite
building in a demand pick up for the industry (11% in FY12), we expect operating rates
to remain sub-80% over the next few quarters. We marginally lower our realisation
estimates (R185/bag; -1% YoY). We also revise up our imported coal cost estimates to
US$125/t and US$115/t for CY11-12 (4-17% increase), in-line with revisions made by
our resources team. Recent rail freight hike (+4% in Dec; mix: 35%) would also
impact cost base from 1QCY11 onwards.
Maintain Sell; target px: Rs110/sh
We remain concerned on the sector fundamentals given rising capacity surpluses. The
stock has corrected 17% in the last three months and has underperformed the
markets by 6ppt. Current valuations (9x one year forward EV/Ebitda; US$140/t) do not
factor in weak fundamentals, in our view. Maintain Sell with a target px of Rs110/sh.
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