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Ambuja Cements (ACEM IN)
UW: 2QCY11 results largely in line – flat EBITDA y-o-y
EBITDA at INR5.9bn was up just 1% y-o-y as higher costs
offset higher cement price benefits
Chandrapur commercialisation will likely lead to better
volumes vs flat 1H; we forecast c5% volume growth for CY11
We retain UW on ACEM and target price of INR110, but
prefer UTCEM over ACC/ACEM
EBITDA flat, as benefits of high realisations were offset by higher costs/sluggish
volumes
ACEM reported EBITDA of INR5.9bn (down 1% y-o-y and 2.2% q-o-q), which was
9% above consensus estimates of INR5.4bn.
Revenues, at INR21.8bn, were up c7% y-o-y following a c9% increase in realisations
despite volume de-growth of c2.2%.
Costs increased c10% y-o-y following increases in power and fuel costs (up 27% y-o-y)
and employee costs (up c25% y-o-y). We suspect raw material stocking prior to
Chandrapur expansion might have led to lower per tonnage raw material costs.
Freight costs and other expenditure increased c10% and c12% y-o-y, and c7% and 6%
on a q-o-q basis, respectively.
Not yet improving, but unlikely to get much worse either…
In our note, ‘Indian cement sector: In the doldrums’, 13 July 2011, we argued that the
outlook for the cement sector was unlikely to improve in a hurry, and that the negatives
we highlighted had been factored into market consensus. For ACEM, specifically, we
expect costs to increase over the next couple of quarters, following recently raised diesel
prices and normal inflation in other costs amid cement pricing pressures following the
seasonally weaker monsoon season.
Maintain UW and price target of INR110; we prefer UTCEM over ACC/ACEM
We value ACEM using a blended EV/EBITDA, EV/GCI methodology and justified PE
multiple to derive our price target of INR110, which implies an Underweight rating. In
our cement universe, we prefer Ultratech (UTCEM, INR1,027, N) over ACC (ACC,
INR995.75, UW) and ACEM as we expect UTCEM’s valuation discount to these stocks
to reduce. Risks: Higher-than-expected increases in cement prices could improve the
company’s profitability drastically
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ambuja Cements (ACEM IN)
UW: 2QCY11 results largely in line – flat EBITDA y-o-y
EBITDA at INR5.9bn was up just 1% y-o-y as higher costs
offset higher cement price benefits
Chandrapur commercialisation will likely lead to better
volumes vs flat 1H; we forecast c5% volume growth for CY11
We retain UW on ACEM and target price of INR110, but
prefer UTCEM over ACC/ACEM
EBITDA flat, as benefits of high realisations were offset by higher costs/sluggish
volumes
ACEM reported EBITDA of INR5.9bn (down 1% y-o-y and 2.2% q-o-q), which was
9% above consensus estimates of INR5.4bn.
Revenues, at INR21.8bn, were up c7% y-o-y following a c9% increase in realisations
despite volume de-growth of c2.2%.
Costs increased c10% y-o-y following increases in power and fuel costs (up 27% y-o-y)
and employee costs (up c25% y-o-y). We suspect raw material stocking prior to
Chandrapur expansion might have led to lower per tonnage raw material costs.
Freight costs and other expenditure increased c10% and c12% y-o-y, and c7% and 6%
on a q-o-q basis, respectively.
Not yet improving, but unlikely to get much worse either…
In our note, ‘Indian cement sector: In the doldrums’, 13 July 2011, we argued that the
outlook for the cement sector was unlikely to improve in a hurry, and that the negatives
we highlighted had been factored into market consensus. For ACEM, specifically, we
expect costs to increase over the next couple of quarters, following recently raised diesel
prices and normal inflation in other costs amid cement pricing pressures following the
seasonally weaker monsoon season.
Maintain UW and price target of INR110; we prefer UTCEM over ACC/ACEM
We value ACEM using a blended EV/EBITDA, EV/GCI methodology and justified PE
multiple to derive our price target of INR110, which implies an Underweight rating. In
our cement universe, we prefer Ultratech (UTCEM, INR1,027, N) over ACC (ACC,
INR995.75, UW) and ACEM as we expect UTCEM’s valuation discount to these stocks
to reduce. Risks: Higher-than-expected increases in cement prices could improve the
company’s profitability drastically
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