Ambuja Cements (Q1 CY14)

India Infoline News Service | Mumbai |

Ambuja Cements (ACL) revenues stood at Rs27bn, above our estimate of Rs25.8bn.

CMP Rs219, Target Rs177, Downside 18.9%
  • 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

Result table*
(Rs mn) Q1 CY14 Q1 CY13 % yoy Q4 CY13 % qoq
Net sales 26,493 25,570 3.6 22,094 19.9
Material costs 2,559 2,442 4.8 2,150 19.1
Personnel costs 1,291 1,208 6.9 1,197 7.9
Power and fuel costs 5,783 5,495 5.3 5,007 15.5
Freight cost 6,660 6,449 3.3 5,781 15.2
Other overheads 4,329 4,446 (2.6) 4,890 (11.5)
Operating profit 5,872 5,532 6.2 3,070 91.2
OPM (%) 22.2 21.6 53 bps 13.9 827 bps
Depreciation (1,197) (1,204) (0.5) (1,228) (2.5)
Interest (161) (132) 21.6 (169) (4.9)
Other income 1,319 1,495 (11.8) 882 49.5
PBT 5,832 5,690 2.5 2,556 128.2
Tax (632) (811) (22.1) 610 (203.7)
Effective tax rate (%) 10.8 14.3 (23.9)
Adjusted PAT 5,200 4,879 6.6 3,165 64.3
Adj. PAT margin (%) 19.6 19.1 55 bps 14.3 530 bps
Reported PAT 5,200 4,879 6.6 3,165 64.3
Source: Company, India Infoline Research, *Standalone

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.


Cost analysis
As a % of net sales Q1 CY14 Q1 CY13 bps yoy Q4 CY13 bps qoq
Material costs 9.7 9.5 11 9.7 (7)
Personnel costs 4.9 4.7 15 5.4 (54)
Power and fuel costs 21.8 21.5 34 22.7 (83)
Freight cost 25.1 25.2 (8) 26.2 (103)
Other overheads 16.3 17 (105) 22 (579)
Total costs 77.8 78 (53) 86 (827)

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.

Financial Summary

Y/e 31 Mar (Rs m) CY12 CY13E CY14E CY15E
Revenues 98,017 92,338 97,554 104,058
Yoy growth (%) 14.0 (5.8) 5.6 6.7
Operating profit 24,703 16,508 20,370 23,775
OPM (%) 25.2 17.9 20.9 22.8
Pre-exceptional PAT 15,735 12,697 12,867 14,767
Reported PAT 12,944 12,946 12,867 14,767
Yoy growth (%) 6.0 0.0 (0.6) 14.8
 
EPS (Rs) 10.2 8.2 8.3 9.6
P/E (x) 21.4 26.5 26.1 22.8
Price/Book (x) 3.8 3.3 3.0 2.6
EV/EBITDA (x) 12.7 18.8 14.9 12.5
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 18.6 13.4 12.0 12.2
RoCE (%) 24.8 15.4 16.6 16.9
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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