Ambuja Cement - Realisations Surprise; Result Update Q3CY14 :: Edelweiss

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Ambuja Cement’s (ACEM) Q3CY14 EBITDA (at INR3.9bn, up 47% YoY) was 26% above estimate with positive surprise on realisations (which dipped 2% QoQ) versus our 4% estimate. While volumes at 4.8mt (down 2% YoY) were broadly in line, costs also contributed to the outperformance being 2% below estimates (due to 4.5% QoQ decline in freight cost/t). Ergo, EBITDA/t at INR789 (up 51% YoY) was higher than our INR622 estimate. However, our existing estimates for full year CY14/CY15 factor in these positives and remain largely unchanged. We continue to value ACEM at 10x CY15E EV/EBITDA factoring in ~30% CAGR in EBITDA over CY13-15E, improved demand outlook and chances of further improvement in industry utilisation in CY16, given limited capacity additions. Our target price is however, marginally lowered to INR202 from INR204 owing to downward revision in our target price for ACC (the proposed 50.1% subsidiary).

Costs and realisation surprise

Cement volumes at 4.8mt (grey cement at 4.67mt, down 1% YoY and clinker sales at 134kt versus 166kt in Q3 last year), were broadly in line. However, realisation surprised with decline of 1.7% QoQ versus our 3.6% estimate. Costs were also benign, being 2% below estimates (on per tonne basis), led by the 4.5% QoQ drop in freight cost/t versus our estimate of a marginal increase. Ergo, EBITDA/t at INR789 (up 51% YoY) was higher than our INR622 estimate.   

Capex update

During the quarter, the company increased its grinding capacity by 0.8mpta in Rajasthan, taking the total capacity to 29mtpa which by end CY15 will rise to 30mtpa. Pending clarity on how the global merger of Lafarge and Holcim will be implemented in India, the 4.5mtpa expansion plan in Rajasthan is yet to take off.

LINK
https://www.edelweiss.in/research/Ambuja-Cement--Realisations-Surprise;-Result-Update-Q3CY14/27408.html