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Ambuja Cements Ltd.
Mar-11: Better Prices +
Benign Cost (QoQ) Support
Earnings Momentum
Quick Comment: Ambuja Cement (ACEM) reported
earnings for QE Mar-11 that were ahead of our and
consensus estimates. In our view, this was driven by
better-than-expected realization and lower-thanexpected
costs. However, maintaining margins could be
challenging near term, given increasing cost pressure
and our view that realizations are likely to come off given
recent demand trends. Moreover, the stock trades at full
valuations, in our view, at 10x 2011e /EBITDA. Our
rating is Equal-weight, and we recommend that
investors reduce positions on the back of strong results.
We would become buyers once we gain better visibility
on earnings or as valuations become attractive.
What's new: ACEM reported QE Mar-11 revenue of
Rs22bn, implying 10% YoY and 23% sequential growth.
Volumes grew by 5% YoY. The key highlight was 10%
sequential and 4% YoY gain in prices. This resulted in
10ppt improvement in EBITDA margins sequentially to
28%, versus our estimate of 24.4%, leading to near
doubling of sequential EBITDA to Rs6.1bn. YoY margins
however, were still down by 400bps on higher costs.
EBITDA/ton improved smartly to Rs1,084 from Rs623 in
the previous quarter, though was below the peak seen in
the year-ago period. Core PAT was Rs4bn, implying 8%
YoY decline but sequential growth of 62%.
Volume growth was marginally ahead of industry:
ACEM reported volumes of 5.6mnt, up 7% YoY and
ahead of industry growth at 5%. We believe that volume
momentum should pick up as the company benefits from
commissioning/ramp up of new capacity in North and
East India. However, growth is likely to be back-ended,
in line with our view on industry growth.
Pricing momentum was ahead of our expectation:
ACEM’s realizations for QE Mar-11 improved by 10% on
a sequential basis, ahead of our estimate of 8%. On our
estimate, quarter-end pricing was even higher, however
we see some pricing risk ahead in the quarter that could limit
the earnings upside risk for QE Jun-11.
Benign costs too supported earnings progression; nearterm
margins at some risk: ACEM’s cost per ton declined by
3% sequentially, ahead of our estimate of 1% decline. On YoY
basis, cost per ton is higher by 9% given higher coal and
freight cost, notwithstanding lower material cost. Power and
fuel cost declined QoQ, however, we expect this to tick up
given the increase in domestic and international coal prices.
Freight cost increased primarily on the back of internal
material transfer (from clinker to grinding units) as the
company shifted to own clinker, and is likely to remain high, in
line with volumes. Material costs too declined as the company
shifted to own clinker.
Company Description
Established in 1983, Ambuja Cements Ltd is arguably the
lowest-cost cement producer in India. In 2006, Swiss cement
major Holcim (the second-largest cement producer in the world)
became Ambuja CementsÆ major shareholder. Ambuja
Cement has a network of five integrated cement manufacturing
plants and eight cement grinding units across India.
India Cement
Industry View: In-Line
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ambuja Cements Ltd.
Mar-11: Better Prices +
Benign Cost (QoQ) Support
Earnings Momentum
Quick Comment: Ambuja Cement (ACEM) reported
earnings for QE Mar-11 that were ahead of our and
consensus estimates. In our view, this was driven by
better-than-expected realization and lower-thanexpected
costs. However, maintaining margins could be
challenging near term, given increasing cost pressure
and our view that realizations are likely to come off given
recent demand trends. Moreover, the stock trades at full
valuations, in our view, at 10x 2011e /EBITDA. Our
rating is Equal-weight, and we recommend that
investors reduce positions on the back of strong results.
We would become buyers once we gain better visibility
on earnings or as valuations become attractive.
What's new: ACEM reported QE Mar-11 revenue of
Rs22bn, implying 10% YoY and 23% sequential growth.
Volumes grew by 5% YoY. The key highlight was 10%
sequential and 4% YoY gain in prices. This resulted in
10ppt improvement in EBITDA margins sequentially to
28%, versus our estimate of 24.4%, leading to near
doubling of sequential EBITDA to Rs6.1bn. YoY margins
however, were still down by 400bps on higher costs.
EBITDA/ton improved smartly to Rs1,084 from Rs623 in
the previous quarter, though was below the peak seen in
the year-ago period. Core PAT was Rs4bn, implying 8%
YoY decline but sequential growth of 62%.
Volume growth was marginally ahead of industry:
ACEM reported volumes of 5.6mnt, up 7% YoY and
ahead of industry growth at 5%. We believe that volume
momentum should pick up as the company benefits from
commissioning/ramp up of new capacity in North and
East India. However, growth is likely to be back-ended,
in line with our view on industry growth.
Pricing momentum was ahead of our expectation:
ACEM’s realizations for QE Mar-11 improved by 10% on
a sequential basis, ahead of our estimate of 8%. On our
estimate, quarter-end pricing was even higher, however
we see some pricing risk ahead in the quarter that could limit
the earnings upside risk for QE Jun-11.
Benign costs too supported earnings progression; nearterm
margins at some risk: ACEM’s cost per ton declined by
3% sequentially, ahead of our estimate of 1% decline. On YoY
basis, cost per ton is higher by 9% given higher coal and
freight cost, notwithstanding lower material cost. Power and
fuel cost declined QoQ, however, we expect this to tick up
given the increase in domestic and international coal prices.
Freight cost increased primarily on the back of internal
material transfer (from clinker to grinding units) as the
company shifted to own clinker, and is likely to remain high, in
line with volumes. Material costs too declined as the company
shifted to own clinker.
Company Description
Established in 1983, Ambuja Cements Ltd is arguably the
lowest-cost cement producer in India. In 2006, Swiss cement
major Holcim (the second-largest cement producer in the world)
became Ambuja CementsÆ major shareholder. Ambuja
Cement has a network of five integrated cement manufacturing
plants and eight cement grinding units across India.
India Cement
Industry View: In-Line
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