04 August 2011

Hold Ambuja Cements, Target : Rs 139:: ICICI Securities,

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H i g h e r   r  e a l i s  a t i o n   o f f s e t s   l owe r   s a l e s   v o l ume…
Ambuja Cement reported net sales of | 2173.3 crore, up 6.1% YoY above
our estimate of | 2037 crore. The company reported EBITDA and PAT of |
582.6 crore (down 3.4% YoY and 4.7% QoQ) and | 347.5 crore (down
~11% YoY and ~15% QoQ) ahead of our respective estimates of | 446
crore and | 271 crore on account of higher-than-expected realisation
growth. However, the operating margin declined by 265 bps YoY (90 bps
QoQ) to 26.8% on account of a sharp rise in power and fuel cost,
employee cost and freight expenses by 25.4%, 23.2% and 12.4%
respectively on a per tonne basis. The company has increased its
capacity to 27 MTPA after commissioning of 5 MTPA of grinding units.
We  expect  volume  growth  of  7%  CAGR  (CY10-12E).  Going  forward,  we
expect realisations to improve in CY11E and CY12E by ~5% YoY each.
However, increasing input costs would keep margins under pressure.

ƒ Sales volume down ~7%QoQ, realisation up ~5.4% QoQ
Ambuja Cement reported sales volumes of 5.29 MT that decreased
~1% YoY and ~7% QoQ. Net realisations increased ~7.1% YoY
and ~5.4% QoQ to | 4108/tonne mainly due to an increase in prices
across all regions till the middle of the quarter.
ƒ EBITDA/tonne improves ~2% QoQ
Sequentially, the EBITDA/tonne has improved ~2% QoQ to | 1101
on account of ~5.4%QoQ increase in realisations. The total cost per
tonne increased ~6.7% QoQ mainly due to a rise in power & fuel
cost, raw material cost and others cost. Thus, the EBITDA margin
has dipped by 90 bps QoQ to 26.8%. On a YoY basis, the
EBITDA/tonne declined ~3% on account of higher costs.
V a l u a t i o n
At the CMP of | 133, the stock is trading at 16.8x and 14.9x its CY11E and
CY12E earnings, respectively. The stock is trading at an EV/EBITDA of
8.8x and 7.6x CY11E and CY12E EBITDA, respectively. On an EV/tonne
basis, the stock is trading at $140 and $130 its CY11E and CY12E
capacities, respectively. We are assigning a HOLD rating to the stock with
a revised target price of | 139/share on the basis of valuation of
$140/tonne at CY12E capacity of 27 MTPA.

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