Visit http://indiaer.blogspot.com/ for complete details Ambuja Cements - Subdued performance; to improve ahead
n 3QCY10 results. Ambuja’s net profit declined 44% yoy, lower than our and consensus estimates. Decline in realizations and increase in power & fuel cost led to the drop. We estimate CY11 earnings to be strong, driven by recent price recovery, savings on clinker purchase and strong volume growth. Maintain Buy.
n Realizations decline 10% yoy. Realisation fell 10% yoy and 6% qoq to ~Rs3,595/ton. Cement dispatch volumes rose 7% yoy to 4.35m tons (down 19% qoq). Domestic volumes increased 7.6% yoy, while exports declined 32% yoy.
n EBITDA/ton nose-dives 39% yoy. EBITDA/ton, at Rs650, fell 39% yoy and 42% qoq mainly due to a drop in realisations. The benefit of lower raw material cost (down ~ Rs300/ton yoy due to no clinker purchases) was offset by higher power & fuel cost at Rs1,025/ ton (up ~ Rs265/ton due to higher clinker production and fuel prices). ‘Other expense’ atRs780/ton (up ~`100/ton) increased due to higher maintenance and selling & distribution cost.
n Outlook. New clinker units at Chhattisgarh and HP have achieved 50% utilisation levels. Two grinding units (Maratha & Bhatapara) will commence by 4QCY10, taking capacity to 27m tons. A transporters’ strike at its HP plants (3.1m tons) since 7thOct, stalled production and dispatches. Ambuja expects demand to pick up towards the year-end. It expects medium-term demand and realisations to improve.
n Valuations. At our target price of Rs148, the stock would trade at 7.5x CY11 EV/EBITDA, in line with its ten-year average. The target price implies a PE of 14x CY11 and an EV/ton of US$160.
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