Higher realisation leads margin expansion… • Ambuja :: ICICI Securities, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Higher realisation leads margin expansion…
• Ambuja’s Q3CY14 revenues increased 9.8% YoY (down 18.6% QoQ)
to | 2202.1 crore (vs. I-direct estimate: | 2362 crore). The lower
growth can be attributed to lower sales volumes that declined 1.1%
YoY to 4.67 MT while realisation growth of 11.0% YoY (| 4674 per
tonne) helped the company to report a growth in topline
• With better realisations, EBITDA margin remained 70 bps ahead of
our estimates at 17.9% (up 513 bps YoY). In absolute terms, EBITDA
of | 393.4 crore (up 54.1% YoY, down 31.5% QoQ) remained lower
than our estimates (I-direct estimate: | 407.1 crore)
• Net profit increased 44% YoY to | 239.1 crore, which was lower than
our estimates (I-direct estimate: | 278.4 crore)
Third largest player in industry with 28 MT capacity…
Ambuja Cement has lost its second position in terms of revenue over the
last five years due to no major capacity addition happening during the
same period. It is currently the third largest player in the industry with
north and western region contributing ~70% of total revenue of the
company. In order to strengthen its position in the northern and eastern
region, the company is expanding its capacity by 6 MT over the next two
or three years. Brownfield expansion of 0.8 MT and 0.3 MT capacity at
Sankrail (West Bengal) and Rabriyawas (Rajasthan), respectively, are in
the pipeline. Along with this, greenfield clinker grinding units of 1.5 MTPA
capacity each at Marwar Mundwa (Rajasthan), Dadri (phase II) in UP and
Osara in MP at an approximate cost of | 3500 crores will increase cement
capacity by 20% i.e. from current ~28 MTPA to ~34 MTPA by CY15E.
Acquisition of 50% stake in ACC to be game changer in longer term
Although the 50% stake acquisition in ACC involving cash outflow of
nearly | 3500 crore from books of Ambuja would lower the pace of major
capex in the medium term, the synergy benefit in terms of cost saving
(~| 900 crore) and dividend from ACC would start generating healthy
cash flow from CY15 onwards. Post acquisition of 50% stake in ACC at an
attractive valuation of US$123 EV/tonne, Ambuja will have a pan India
footprint with 58 MTPA capacities. The transaction is slated to get
completed by Q3CY14.
To remain debt free even after major acquisition
Ambuja currently has net cash of over ~| 1900 crore and, is likely to
generate operating cashflows of at least ~|5000 crore over CY14-CY15E
apart from healthy dividend payouts from ACC. Hence, even after paying
| 3500 crore for acquiring 50% stake in ACC and meeting capex
requirement of Rs 2400 crore over CY14-CY15E, we believe, Ambuja
would likely to maintain it debt free status in future.
Valuations in line with current replacement costs; maintain HOLD
We expect volume & realisation CAGR of ~3.9% and ~5.2% respectively
during the CY13-16E. On an EV/tonne, the stock is trading at $163 on
CY15E adjusted capacity including 50% capacity of ACC, (i.e. in line with
current replacement cost). Hence, we maintain our HOLD rating on the
stock with a revised target price of | 241share (i.e. valuing Ambuja’s
business at 13.0x CY16E EV/EBITDA and valuing stake in ACC at discount
of 15% on fair value which works out to implied valuation of $170
EV/tonne on combined adjusted capacity).

LINK
http://content.icicidirect.com/mailimages/IDirect_AmbujaCement_Q3CY14.pdf