AMBUJA CEMENT (ACEM IN) SELL - Ambit

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AMBUJA CEMENT (ACEM IN) SELL
In line with lower cement demand offtake in CY11, we expect Ambuja’s sales
volume to grow by 6% YoY in CY11 and CY12. We have factored in flat realisation
in CY11 to reflect the pressure on realisations arising from the impact of
commissioning the expected new cement capacity in India by March 2012. We
have accounted for higher fuel and freight cost as coal prices have increased in
the domestic and import markets. We have lowered our CY11 and CY12 net
realisation estimates by ~Rs20/mt in-line with the excise duty hike declared in the
Union Budget 2012.
We expect muted realisation growth and cost pressure to lead to a 330bps decline
in operating margins and 16% decline in net profits for CY11. The excise hike has
resulted in our previous CY11 EBITDA and net profit estimates coming downwards
by ~2% each.
Subsequently, our DCF-based valuation implies a fair value of Rs123/share (1%
lower than our previous estimate of Rs125/share). The fair value discounts CY11E
and CY12E EBITDA 9x and 7x respectively and implies a replacement cost of
US$132/mt.