Ambuja Cements (Q2 CY14)

Ambuja Cements (ACL) revenues stood at Rs27.2bn, above our estimate of Rs26bn.

Jul 28, 2014 10:07 IST India Infoline News Service

CMP Rs219, Target Rs209, Downside 4.5% 

  • Best realization ever (up 7% qoq) led to 14.4% yoy topline growth.

  • OPM stood at 21.6%, flat on yoy basis as higher fuel and freight cost neutralize benefit arising on account of higher realization.

  • PAT grew 26.1% on back of higher other income.

  • Upgrade from SELL rating to Reduce with a revised 9-month price target of Rs209

Result table*
(Rs mn) Q2 CY14 Q2 CY13 % yoy Q1 CY14 % qoq
Net sales 27,201 23,767 14.4 26,512 2.6
Material costs 1,743 1,134 53.7 2,625 (33.6)
Personnel costs 1,407 1,320 6.6 1,291 9.0
Power and fuel costs 6,242 5,560 12.3 5,783 7.9
Freight cost 6,902 6,056 14.0 6,593 4.7
Other overheads 5,029 4,468 12.5 4,329 16.2
Operating profit 5,878 5,229 12.4 5,891 (0.2)
OPM (%) 21.6 22.0 (39 bps) 22.2 (61 bps)
Depreciation (1,242) (1,223) 1.5 (1,197) 3.7
Interest (203) (171) 18.6 (161) 25.8
Other income 1,381 742 86.1 1,300 6.2
PBT 5,815 4,577 27.0 5,833 (0.3)
Tax (1,728) (1,336) 29.4 (632) 173.4
Effective tax rate (%) 29.7 29.2 10.8
Adjusted PAT 4,087 3,242 26.1 5,201 (21.4)
Adj. PAT margin (%) 15.0 13.6  139 bps 19.6  (459 bps)
Reported PAT 4,087 3,242 26.1 5,201 (21.4)
Source: Company, India Infoline Research, *Standalone

Best ever realizations boost revenues

Ambuja Cements (ACL) revenues stood at Rs27.2bn, above our estimate of Rs26bn. The outperformance was largely due to higher realization up 7% sequentially against expectations of 3%qoq. Realizations have improved ~18% over the past two quarters translating into best ever realization for ACL. We believe better pricing trend especially in western and northern regions led to a jump in realizations. Volume growth of 8%yoy was in-line with estimates.


Cost analysis
As a % of net sales Q2 CY14 Q2 CY13 bps yoy Q1 CY14 bps qoq
Material costs 6.4 4.8 164 9.9 (349)
Personnel costs 5.2 5.6 (38) 4.9 31
Power and fuel costs 22.9 23.4 (45) 21.8 113
Freight cost 25.4 25.5 (10) 24.9 50
Other overheads 18.5 19 (31) 16 216
Total costs 78.4 78 39 78 61

Margins flat as power and freight cost mitigate benefit of higher realizations

Operating margins for ACL remained flat despite of a 7%qoq jump in realization. OPM was lower on back of a) increase in power and fuel cost, which stood at Rs1,078/ton at 6 quarter high and b) surge in  railway freight and diesel prices impact the cost overhead (Rs1,192/ton as against Rs1,088/ton qoq basis) arrested any expansion on operational front.

Other income was higher on back of inclusion of interest on income tax pertaining to previous year. PAT grew 26%yoy, primarily on account of Rs500mn additional other income.

Expensive valuations; Upgrade to reduce

Government emphasis on a) housing for all, b) 100 new cities, and c) infrastructure development like building ports and roads is most likely to boost cement demand in the coming years. Construction activity is most likely to pick up in northern and western markets, impacting volume and realization of companies like ACL. Though we continue to believe ACL is trading at an expensive valuation, we upgrade the stock to reduce from SELL on back of rolling over our valuation to CY16 from CY15 in the previous quarter.


Financial Summary
Y/e 31 Mar (Rs m) CY13 CY14E CY15E CY16E
Revenues 91,604 108,361 120,403 133,428
Yoy growth (%) (5.9) 18.3 11.1 10.8
Operating profit 16,508 22,708 27,026 33,080
OPM (%) 18.0 21.0 22.4 24.8
Pre-exceptional PAT 12,698 14,556 17,197 21,287
Reported PAT 12,946 14,556 17,197 21,287
Yoy growth (%) (0.2) 12.4 18.1 23.8
 
EPS (Rs) 8.2 9.4 11.1 13.8
P/E (x) 26.7 23.3 19.7 15.9
Price/Book (x) 3.6 3.3 3.0 2.6
EV/EBITDA (x) 19.7 14.2 11.7 9.3
Debt/Equity (x) 0.0 0.0 0.0 0.0
RoE (%) 13.9 14.7 15.9 17.6
RoCE (%) 16.0 20.2 21.7 24.1
Source: Company, India Infoline Research

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