Top-line grew by 3.6%yoy boosted by improvement in realizations
OPM stood at 22.2% flat yoy basis; up 8ppts on sequential basis
PAT grew 6.6% on back of higher other income and tax write back
Maintain SELL with a revised 9-month price target of Rs177
|(Rs mn)||Q1 CY14||Q1 CY13||% yoy||Q4 CY13||% qoq|
|Power and fuel costs||5,783||5,495||5.3||5,007||15.5|
|OPM (%)||22.2||21.6||53 bps||13.9||827 bps|
|Effective tax rate (%)||10.8||14.3||(23.9)|
|Adj. PAT margin (%)||19.6||19.1||55 bps||14.3||530 bps|
Improved realization boost revenues
Ambuja Cements (ACL) revenues stood at Rs27bn, above our estimate of Rs25.8bn. The outperformance was largely due to higher realization up 10% sequentially against expectations of 7%qoq. Volume growth of 4%yoy was in-line with estimate. The realization was higher as shutdown of a Binani Cement plant resulted in a supply crunch in the Northern region.
|As a % of net sales||Q1 CY14||Q1 CY13||bps yoy||Q4 CY13||bps qoq|
|Power and fuel costs||21.8||21.5||34||22.7||(83)|
Margins boosted by higher realizations, savings in personnel/other overhead costs
Operating margins for ACL expanded by 50bpsyoy as against our estimate of 50bps contraction. OPM was better than our estimate on back of A) decrease in Staff cost, which stood at 213/ton at 4 quarter low (against our expectation of 235/ton) and B) reduction in other overhead also boosted margins. Jump in material cost (422/ton as against 389/ton qoq basis) arrested further expansion on operational front.
Tax credit relating to previous quarter outflow. Other income was higher on back of inclusion of some of the past arrears. PAT grew 6.6%yoy higher than our estimated drop of 29%yoy.
Expensive valuations; maintain Sell
Construction activity has slowed down in key eastern and western markets of ACL, impacting realization of the company. Cement sector is going through tough times as significant slowdown in demand and supply surplus in most regions are impacting realization negatively. Slackening demand in the peak construction season makes us believe that industry may go through weak phase for the next 2-3 quarters. The sector could possibly see a revival post H1 FY15 on back of a) resumption of investment cycle post general elections b) softening of interest rate and c) demand revival in northern, eastern and western regions limiting the surplus to central and southern zones.
Flat realizations along with cost pressures are likely to impact operating margins and earnings. In addition, Holcim India deal (buying 50% stake in ACC for cash and fresh equity issuance) is likely to weaken the balance sheet for ACL in the near-term. We maintain our SELL rating with a revised 9-month target of Rs177.
|Y/e 31 Mar (Rs m)||CY12||CY13E||CY14E||CY15E|
|Yoy growth (%)||14.0||(5.8)||5.6||6.7|
|Yoy growth (%)||6.0||0.0||(0.6)||14.8|