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Strong operating earnings as costs decline
Ambuja reported a significant beat in the Mar quarter numbers with EBITDA at
Rs6.3bn (+78% q/q; -4% y/y). This was ahead of JPM estimates at Rs5.8bn and
Bloomberg consensus at Rs5.4bn. While volumes and realization growth were in line
with our expectations, lower than expected operating cost/MT (down 3% q/q) drove
much of the outperformance in the quarter. ACEM’s 1QCY11 PAT came in at
Rs4.1bn (vs. JPMe Rs3.4bn and consensus at Rs3.3bn) aided by the 38% q/q increase
in other income and lower than expected tax rate (27% vs. JPMe at 31% due to
commission and ramp up of HP unit which has tax holiday).
Inline volume and ASP growth: Volume increased 12% q/q, with demand trends,
while soft compared to previous years, improved in its key markets. YTD Feb-11
cement consumption in East India has increased 10% while North India has grown
by 4%. Realization growth was strong at 9% driven by the 20% price increases taken
in North India (incl UP) from Jan.
Higher coal cost from Jun quarter: Ambuja’s operating cost/MT declined 3%
sequentially driven by the lower RM cost/MT (-31% q/q as transport strike led to
higher clinker purchase in Dec qtr) and 4% decline in power cost. In our view, the
company utilized its low price coal inventory during the quarter and the impact from
high coal prices (both import and due to Coal India 30% price hike) will flow in from
the June quarter.
This helped improve EBITDA/Mt to Rs1,112/MT (+59% q/q and -10% y/y) and was
better than JPMe at Rs1,019/MT.
Valuations and Key risks
We increase our CY11/CY12E EBITDA estimates by 11% and 2%. At current
valuations of EV/MT $177/MT and EV/EBITDA 11.0x CY11E v/s $123/MT and
8.3x FY12E for UTCEM, we believe ACEM is still pricing in some sort of 'corporate
event', which in our view is that of a merger with ACC. We remain UW with a
revised March-12PT of Rs125 based on $130/MT CY12E EV/MT (We increase our
valuation multiple to $130/MT v/s $120/MT given increasing greenfield costs). Key
risk is sharp recovery in cement prices and/or demand, or merger with ACC.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong operating earnings as costs decline
Ambuja reported a significant beat in the Mar quarter numbers with EBITDA at
Rs6.3bn (+78% q/q; -4% y/y). This was ahead of JPM estimates at Rs5.8bn and
Bloomberg consensus at Rs5.4bn. While volumes and realization growth were in line
with our expectations, lower than expected operating cost/MT (down 3% q/q) drove
much of the outperformance in the quarter. ACEM’s 1QCY11 PAT came in at
Rs4.1bn (vs. JPMe Rs3.4bn and consensus at Rs3.3bn) aided by the 38% q/q increase
in other income and lower than expected tax rate (27% vs. JPMe at 31% due to
commission and ramp up of HP unit which has tax holiday).
Inline volume and ASP growth: Volume increased 12% q/q, with demand trends,
while soft compared to previous years, improved in its key markets. YTD Feb-11
cement consumption in East India has increased 10% while North India has grown
by 4%. Realization growth was strong at 9% driven by the 20% price increases taken
in North India (incl UP) from Jan.
Higher coal cost from Jun quarter: Ambuja’s operating cost/MT declined 3%
sequentially driven by the lower RM cost/MT (-31% q/q as transport strike led to
higher clinker purchase in Dec qtr) and 4% decline in power cost. In our view, the
company utilized its low price coal inventory during the quarter and the impact from
high coal prices (both import and due to Coal India 30% price hike) will flow in from
the June quarter.
This helped improve EBITDA/Mt to Rs1,112/MT (+59% q/q and -10% y/y) and was
better than JPMe at Rs1,019/MT.
Valuations and Key risks
We increase our CY11/CY12E EBITDA estimates by 11% and 2%. At current
valuations of EV/MT $177/MT and EV/EBITDA 11.0x CY11E v/s $123/MT and
8.3x FY12E for UTCEM, we believe ACEM is still pricing in some sort of 'corporate
event', which in our view is that of a merger with ACC. We remain UW with a
revised March-12PT of Rs125 based on $130/MT CY12E EV/MT (We increase our
valuation multiple to $130/MT v/s $120/MT given increasing greenfield costs). Key
risk is sharp recovery in cement prices and/or demand, or merger with ACC.
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