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EARNINGS REVIEW
Ambuja Cements (ABUJ.BO)
Neutral Equity Research
Below expectations; realizations surprise to the downside
What surprised us
Ambuja reported 2010 net income of Rs12.6bn, up 4% yoy. For 4Q10, the
company reported pre-exceptional net income of Rs2,516 mn, up 4% yoy,
up 65% qoq, and 9% above both GS estimates and Reuters consensus on
lower effective tax rate of 4%. 4Q10 EBITDA of Rs3.5bn (-21% yoy) was
11% below GS estimates and 14% below consensus. While muted volume
growth of 3% yoy was in line with our expectations, realizations
disappointed, down 1% qoq (vs. GSe of +6% qoq). Subsequently, margins
were under pressure – EBITDA/ton came in at Rs707 (GSe: Rs795) vs.
Rs929 in 3Q10. EBITDA margins were down 557 bp yoy, led by lower
realizations (-2% yoy) and higher fuel costs (+32% yoy). For 2010, EBITDA
margins were down 150 bp, as the reduction in high cost clinker purchases
were offset by higher fuel and freight costs. Ambuja recommended a final
dividend of Rs1.40 per share, implying Rs2.60 for the CY2010.
What to do with the stock
While we were expecting growth in Ambuja’s realizations to be lower than
peers, given nil exposure to South (which witnessed the maximum price
increase in 4Q), a decline in realizations surprised us to the downside.
Cement demand continues to be a source of concern, as January dispatch
data also showed muted volume growth across all cement players, after
two months of negative all-India growth. We lower our EPS estimates by
4%/7% for FY11E/12E to account for higher thermal coal costs. We retain
our Neutral rating and 12m EV/RC-based price target of Rs103. The stock
trades at 12m fwd EV/RC of 143% vs. 5-year historical mean of 130%. Risks:
Upside: faster than-expected price recovery, downside: higher coal costs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Ambuja Cements (ABUJ.BO)
Neutral Equity Research
Below expectations; realizations surprise to the downside
What surprised us
Ambuja reported 2010 net income of Rs12.6bn, up 4% yoy. For 4Q10, the
company reported pre-exceptional net income of Rs2,516 mn, up 4% yoy,
up 65% qoq, and 9% above both GS estimates and Reuters consensus on
lower effective tax rate of 4%. 4Q10 EBITDA of Rs3.5bn (-21% yoy) was
11% below GS estimates and 14% below consensus. While muted volume
growth of 3% yoy was in line with our expectations, realizations
disappointed, down 1% qoq (vs. GSe of +6% qoq). Subsequently, margins
were under pressure – EBITDA/ton came in at Rs707 (GSe: Rs795) vs.
Rs929 in 3Q10. EBITDA margins were down 557 bp yoy, led by lower
realizations (-2% yoy) and higher fuel costs (+32% yoy). For 2010, EBITDA
margins were down 150 bp, as the reduction in high cost clinker purchases
were offset by higher fuel and freight costs. Ambuja recommended a final
dividend of Rs1.40 per share, implying Rs2.60 for the CY2010.
What to do with the stock
While we were expecting growth in Ambuja’s realizations to be lower than
peers, given nil exposure to South (which witnessed the maximum price
increase in 4Q), a decline in realizations surprised us to the downside.
Cement demand continues to be a source of concern, as January dispatch
data also showed muted volume growth across all cement players, after
two months of negative all-India growth. We lower our EPS estimates by
4%/7% for FY11E/12E to account for higher thermal coal costs. We retain
our Neutral rating and 12m EV/RC-based price target of Rs103. The stock
trades at 12m fwd EV/RC of 143% vs. 5-year historical mean of 130%. Risks:
Upside: faster than-expected price recovery, downside: higher coal costs
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