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EARNINGS REVIEW
Ambuja Cements (ABUJ.BO)
Neutral Equity Research
In line with expectations; cost pressures offset higher pricing
What surprised us
Ambuja reported 2QCY11 net income of Rs3.5 bn (-11% yoy, -15% qoq), in
line with GS and Bloomberg consensus estimates. Revenue grew 6% yoy
as higher realizations (+7% yoy) offset the impact of lower cement sales
volumes (-2.2% yoy). At the operating level, EBITDA per ton came in at
Rs1,131 (GSe: Rs1,122), down 6% yoy and +2% qoq. With the ramp-up of
the two new kilns at Bhatapara and Rauri, clinker production rose 12% yoy,
and the company substituted high cost clinker purchases with captive
clinker, mitigating cost pressures to some extent. Despite this, EBITDA
margins contracted (400 bp yoy, 90 bp qoq) on rising fuel prices (+24%
yoy), higher other raw material costs (+20% yoy), high power and fuel
costs (+24% yoy) and surging freight (+11% yoy) costs. The company
announced commissioning of a new 0.9 mn tpa capacity grinding unit at
the Maratha plant, which takes the total installed capacity to 26 mn tpa.
The company has provided a cautious outlook of near-term profitability
citing rising costs and a subdued demand environment. The board has
approved the payment of an interim dividend of Rs1.40 per share (70%).
What to do with the stock
A muted demand environment remains an area of concern. We fine-tune
our CY12E-CY14E EPS estimates. The stock trades at 12-m fwd EV/RC of
120% vs. 5-year historical mean of 130%. We maintain our Neutral rating
and 12-m EV/RC-based target price of Rs132. Upside risks: Faster than
expected price recovery. Downside risk: Lower than expected despatch
growth and higher coal costs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Ambuja Cements (ABUJ.BO)
Neutral Equity Research
In line with expectations; cost pressures offset higher pricing
What surprised us
Ambuja reported 2QCY11 net income of Rs3.5 bn (-11% yoy, -15% qoq), in
line with GS and Bloomberg consensus estimates. Revenue grew 6% yoy
as higher realizations (+7% yoy) offset the impact of lower cement sales
volumes (-2.2% yoy). At the operating level, EBITDA per ton came in at
Rs1,131 (GSe: Rs1,122), down 6% yoy and +2% qoq. With the ramp-up of
the two new kilns at Bhatapara and Rauri, clinker production rose 12% yoy,
and the company substituted high cost clinker purchases with captive
clinker, mitigating cost pressures to some extent. Despite this, EBITDA
margins contracted (400 bp yoy, 90 bp qoq) on rising fuel prices (+24%
yoy), higher other raw material costs (+20% yoy), high power and fuel
costs (+24% yoy) and surging freight (+11% yoy) costs. The company
announced commissioning of a new 0.9 mn tpa capacity grinding unit at
the Maratha plant, which takes the total installed capacity to 26 mn tpa.
The company has provided a cautious outlook of near-term profitability
citing rising costs and a subdued demand environment. The board has
approved the payment of an interim dividend of Rs1.40 per share (70%).
What to do with the stock
A muted demand environment remains an area of concern. We fine-tune
our CY12E-CY14E EPS estimates. The stock trades at 12-m fwd EV/RC of
120% vs. 5-year historical mean of 130%. We maintain our Neutral rating
and 12-m EV/RC-based target price of Rs132. Upside risks: Faster than
expected price recovery. Downside risk: Lower than expected despatch
growth and higher coal costs.
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