UBS:: Ambuja Cements 1 Q CY11: Strong Operational performance

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UBS Investment Research
Ambuja Cements Limited
1 Q CY11: Strong Operational performance
􀂄 1Q CY11: Results ahead of UBS-e
Ambuja reported Q1CY11 net sales of Rs22.1bn (+11% y/y, +23% q/q) and
operating profit of Rs6.1bn (-2% y/y, +94% q/q; ahead of UBS-e Rs5.6bn and
consensus Rs5.4bn). The results are ahead of estimates on account of higher
cement realisations. Q1CY11 recurring PAT was of Rs4.1bn (-8% y/y, +90% q/q)
was ahead of UBS-e and consensus. Overall, we think that the company has
delivered strong operational performance in Q1 CY11.

􀂄 EBITDA margins declined 360bps y/y to 27.7%, ahead of UBS-e of 25.5%
EBITDA margins have declined due to 9% y/y rise in operating expenses as
against 4% y/y increase in cement realisation. Still, they are ahead of UBS-e and
consensus primarily due to lower raw material costs (-49% y/y, the company has
also benefitted from capex taken last year) and less than expected increase in
power & fuel costs (+27% y/y).
􀂄 Q1CY11 cement volumes up +7% y/y on CY10 capacity additions
Q1CY11 volumes grew by 7% y/y (+12% q/q) to 5.6mt (includes 0.1mt of clinker
sale). Domestic cement sales grew by 5.5% y/y, however cement exports remained
weak (decline of 31% y/y). Depreciation increased by 38% y/y to Rs1.1bn on the
back of new capacity capitalised in CY10.
􀂄 Valuation: maintain Sell
We value Ambuja at a one-year forward EV/EBITDA of 6.5x. We are cautious on
the near-term outlook for the cement sector in India and maintain our Sell rating.