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Cement
Sequentially better realisations and volumes and stable input costs will
drive material improvement in profitability on a QoQ as well as YoY basis
(except ACC). Despite prices declining in December 2011, realisations were
on an average higher by 6%-8% QoQ and industry volumes rose by 8%
and 9% on a QoQ and YoY basis, respectively. Ambuja and UltraTech
posted volume growth ahead of the industry. We expect seasonal recovery
in pricing in January 2012 as is the case after a drop in December 2011.
We continue to expect volume growth of 5.5% in FY12 and 6% in FY13.
FY12 YTD volume growth is 5.3% (assuming 8% YoY growth in Dec 2011).
Pick up in volumes and pricing: ACC, Ambuja and UltraTech together posted
volume growth more than the industry during the quarter; where Ambuja
witnessed strong despatch momentum every month during the quarter, ACC and
UltraTech posted a strong rebound in December 2011 after an MoM decline in
November 2011. Amongst the top 3, Ambuja posted the highest growth on a QoQ
(16%) and YoY (11%) basis in 4QCY11. Whilst realisations for Ambuja remained
higher throughout the quarter due to higher demand and strong realisations in
Western India, UltraTech and ACC witnessed mixed realisation trends as the
North, East and Central India regions witnessed a decline in realisation in
December 2011 (4%-7%) after increases in October and November. South India
realisations remained stable with poor demand in the quarter. We expect
UltraTech and Ambuja to post higher than ACC’s revenue growth, QoQ and YoY.
Profitability: We expect a marginal increase in overall operating costs for the
sector on account of input costs stabilizing (prices of imported coal stabilizing and
freight costs inching up marginally). 6%-8% QoQ growth in realisations, marginal
cost increases and the low base will mean that EBITDA/tonne for most of the
companies will increase by 4%-41% on a QoQ basis. We model EBITDA/tonne of
`998 for UltraTech, `594 for ACC and `948 for Ambuja for 3QFY12.
Preparing for the upcoming results
Given that volumes for UltraTech and ACC were higher than our earlier estimates,
we have revised upwards our 3QFY12 volume assumptions by 3% for UltraTech
and 4% for ACC. Ambuja’s volumes were in line with our estimated volumes of
5.5mn tonnes. Whilst in our December 19, 2011 note, The retail consumer to the
rescue, we had revised our pricing estimates upwards, with prices in December
2011 declining, we lower our realisation estimate marginally by 2% and our
assumptions imply a QoQ growth in realisations by 8% for ACC and Ambuja and
6% for UltraTech. These adjustments lead to 2%-3% downgrade to our EBITDA and
2%-4% downgrades in PAT for FY12E/CY11E.
Ambit v/s consensus
We are ahead of consensus on revenues as we believe price increases in Oct-Nov
2011 and volume growth for the quarter will lead to higher realisations. In spite of
input costs stabilizing, we expect the increase in rail freight charges to result in
EBITDA lower than consensus for Ambuja and ACC.
Recommendation
W expect EBITDA/tonne to continue to rise in FY13 as low volume growth helps the
larger players to push through prices. Whilst return ratios may be lower than those
in the past, we expect valuations to improve as the near-term low growth, rising
constraints and delayed expansion environment will improve their lead over other
smaller players. Presently, the cement companies are trading at a premium (16%-
27%) to their historical EV/EBITDA compared to their 5-year averages. We
maintain BUY on ACC, UltraTech and Ambuja.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cement
Sequentially better realisations and volumes and stable input costs will
drive material improvement in profitability on a QoQ as well as YoY basis
(except ACC). Despite prices declining in December 2011, realisations were
on an average higher by 6%-8% QoQ and industry volumes rose by 8%
and 9% on a QoQ and YoY basis, respectively. Ambuja and UltraTech
posted volume growth ahead of the industry. We expect seasonal recovery
in pricing in January 2012 as is the case after a drop in December 2011.
We continue to expect volume growth of 5.5% in FY12 and 6% in FY13.
FY12 YTD volume growth is 5.3% (assuming 8% YoY growth in Dec 2011).
Pick up in volumes and pricing: ACC, Ambuja and UltraTech together posted
volume growth more than the industry during the quarter; where Ambuja
witnessed strong despatch momentum every month during the quarter, ACC and
UltraTech posted a strong rebound in December 2011 after an MoM decline in
November 2011. Amongst the top 3, Ambuja posted the highest growth on a QoQ
(16%) and YoY (11%) basis in 4QCY11. Whilst realisations for Ambuja remained
higher throughout the quarter due to higher demand and strong realisations in
Western India, UltraTech and ACC witnessed mixed realisation trends as the
North, East and Central India regions witnessed a decline in realisation in
December 2011 (4%-7%) after increases in October and November. South India
realisations remained stable with poor demand in the quarter. We expect
UltraTech and Ambuja to post higher than ACC’s revenue growth, QoQ and YoY.
Profitability: We expect a marginal increase in overall operating costs for the
sector on account of input costs stabilizing (prices of imported coal stabilizing and
freight costs inching up marginally). 6%-8% QoQ growth in realisations, marginal
cost increases and the low base will mean that EBITDA/tonne for most of the
companies will increase by 4%-41% on a QoQ basis. We model EBITDA/tonne of
`998 for UltraTech, `594 for ACC and `948 for Ambuja for 3QFY12.
Preparing for the upcoming results
Given that volumes for UltraTech and ACC were higher than our earlier estimates,
we have revised upwards our 3QFY12 volume assumptions by 3% for UltraTech
and 4% for ACC. Ambuja’s volumes were in line with our estimated volumes of
5.5mn tonnes. Whilst in our December 19, 2011 note, The retail consumer to the
rescue, we had revised our pricing estimates upwards, with prices in December
2011 declining, we lower our realisation estimate marginally by 2% and our
assumptions imply a QoQ growth in realisations by 8% for ACC and Ambuja and
6% for UltraTech. These adjustments lead to 2%-3% downgrade to our EBITDA and
2%-4% downgrades in PAT for FY12E/CY11E.
Ambit v/s consensus
We are ahead of consensus on revenues as we believe price increases in Oct-Nov
2011 and volume growth for the quarter will lead to higher realisations. In spite of
input costs stabilizing, we expect the increase in rail freight charges to result in
EBITDA lower than consensus for Ambuja and ACC.
Recommendation
W expect EBITDA/tonne to continue to rise in FY13 as low volume growth helps the
larger players to push through prices. Whilst return ratios may be lower than those
in the past, we expect valuations to improve as the near-term low growth, rising
constraints and delayed expansion environment will improve their lead over other
smaller players. Presently, the cement companies are trading at a premium (16%-
27%) to their historical EV/EBITDA compared to their 5-year averages. We
maintain BUY on ACC, UltraTech and Ambuja.
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