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While AC's EBITDA was ahead of estimates, we believe sharp demand slowdown in 1QFY12 (
0.6% y.o.y), pose risk of more prolonged industry oversupply with utilisation rates at 75% levels
for next 2 years. While, AC's balancesheet remains impressive with net cash of Rs16bn, we
remain cautious on sector outlook.
Revenue growth at 6% driven by pricing improvement
Ambuja recorded a revenue growth of 6.1% which was driven by 7% pricing improvement
y.o.y, while cement volumes sold declined by 2% at 5.29mmt. The cement industry recorded
just a 0.6% demand growth in 1QFy12, which constrained Ambuja from utilising its plants
fully.
Despite the industry operating at 75-76% capacity utilisation, cement prices in most markets
scaled to historic high levels in Q2FY11, which resulted in Ambuja overall realisation at
Rs4108/mt. These realisations are the highest ever recorded by the company, and 7.1%
higher than the 2QFY11 levels of Rs3834/mt.
The slow down in the industry demand growth to just 0.6% in April-June 2011, after relatively
weak demand growth of 5% in FY11 is concerning.
EBITDA per mt Rs1100/mt scales back to peak levels
Ambuja EBITDA/mt which slipped to around Rs650/mt in 2HFY10, have now scaled up
further from Rs1084/mt in 1QFY11 to Rs1101/mt in 2QFy11. Clearly, the improvement is
largely backed by the strong pricing improvement in the cement markets.
EBITDA stood at Rs5.8bn in 2Q11. Production costs went up 11.2% yoy to Rs3,007/mt in
2Q11 due to a steep rise in coal prices, higher grid tariffs and rising freight rates. However,
raw material costs declined substantially from Rs155/mt in 2Q10 to Rs.49.6/mt in 2Q11. This
was mainly attributed to thermal and electrical efficiency improvements and by substituting
the purchased clinker with produced clinker. Power costs increased 25.4% yoy to Rs1,065/mt,
mainly due to a substantial increase in coal and pet coke prices and increased grind power
purchase rate. Freight and handling costs increased 12.4% yoy to Rs941/mt on higher freight
rates.
On a sequential basis, cost per tonne grew 6.3% (Rs178/mt) from Rs2,829 in 1Q11, but
realisations grew by Rs195/mt, hence improving EBITDA/mt sequentially.
Ambuja's PBT declined by 5.3% y.o.y, and PAT declined 11% y.o.y at Rs3.48bn.
However we remain concerned on low industry utilisation rates.
The cement industry closed FY11 with a capacity of 302mmt, and a domestic demand of
212mmt. We expect the cement capacity to scale to 325mmt by 2012, but the demand
conditions in FY12 so far indicate only flat levels of growth. As a consequence, we expect the
industry to operate at 75% capacity utilisation levels for the next 2 years.
We believe, such levels of capacity utilisations in a fragmented industry like India ( with over
40 cement players) does expose the sector to pricing competition.
We will review our earnings numbers post the conference call of the management.
Ambuja trades at a EV/mt of $157 which is a 40% premium to replacement cost. Given these
valuations, and the risk to near term earnings, we maintain our sell recommendation.
Ambuja's balance sheet remains very impressive with net cash of Rs16bn, which positions it
ideally to face any down turn in industry margins, and also gives it opportunity to resort to
acquisitions if available.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While AC's EBITDA was ahead of estimates, we believe sharp demand slowdown in 1QFY12 (
0.6% y.o.y), pose risk of more prolonged industry oversupply with utilisation rates at 75% levels
for next 2 years. While, AC's balancesheet remains impressive with net cash of Rs16bn, we
remain cautious on sector outlook.
Revenue growth at 6% driven by pricing improvement
Ambuja recorded a revenue growth of 6.1% which was driven by 7% pricing improvement
y.o.y, while cement volumes sold declined by 2% at 5.29mmt. The cement industry recorded
just a 0.6% demand growth in 1QFy12, which constrained Ambuja from utilising its plants
fully.
Despite the industry operating at 75-76% capacity utilisation, cement prices in most markets
scaled to historic high levels in Q2FY11, which resulted in Ambuja overall realisation at
Rs4108/mt. These realisations are the highest ever recorded by the company, and 7.1%
higher than the 2QFY11 levels of Rs3834/mt.
The slow down in the industry demand growth to just 0.6% in April-June 2011, after relatively
weak demand growth of 5% in FY11 is concerning.
EBITDA per mt Rs1100/mt scales back to peak levels
Ambuja EBITDA/mt which slipped to around Rs650/mt in 2HFY10, have now scaled up
further from Rs1084/mt in 1QFY11 to Rs1101/mt in 2QFy11. Clearly, the improvement is
largely backed by the strong pricing improvement in the cement markets.
EBITDA stood at Rs5.8bn in 2Q11. Production costs went up 11.2% yoy to Rs3,007/mt in
2Q11 due to a steep rise in coal prices, higher grid tariffs and rising freight rates. However,
raw material costs declined substantially from Rs155/mt in 2Q10 to Rs.49.6/mt in 2Q11. This
was mainly attributed to thermal and electrical efficiency improvements and by substituting
the purchased clinker with produced clinker. Power costs increased 25.4% yoy to Rs1,065/mt,
mainly due to a substantial increase in coal and pet coke prices and increased grind power
purchase rate. Freight and handling costs increased 12.4% yoy to Rs941/mt on higher freight
rates.
On a sequential basis, cost per tonne grew 6.3% (Rs178/mt) from Rs2,829 in 1Q11, but
realisations grew by Rs195/mt, hence improving EBITDA/mt sequentially.
Ambuja's PBT declined by 5.3% y.o.y, and PAT declined 11% y.o.y at Rs3.48bn.
However we remain concerned on low industry utilisation rates.
The cement industry closed FY11 with a capacity of 302mmt, and a domestic demand of
212mmt. We expect the cement capacity to scale to 325mmt by 2012, but the demand
conditions in FY12 so far indicate only flat levels of growth. As a consequence, we expect the
industry to operate at 75% capacity utilisation levels for the next 2 years.
We believe, such levels of capacity utilisations in a fragmented industry like India ( with over
40 cement players) does expose the sector to pricing competition.
We will review our earnings numbers post the conference call of the management.
Ambuja trades at a EV/mt of $157 which is a 40% premium to replacement cost. Given these
valuations, and the risk to near term earnings, we maintain our sell recommendation.
Ambuja's balance sheet remains very impressive with net cash of Rs16bn, which positions it
ideally to face any down turn in industry margins, and also gives it opportunity to resort to
acquisitions if available.
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