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Karvy Stock Broking
Ambuja
Cements (Sell)
CMP: ₹239.40
Target: ₹211
Ambuja Cements Ltd is India’s foremost cement company known for its hassle-free, home-building solutions.
Key financials: a) Ambuja Cements’ revenues expected to decline by about 4 per cent y-o-y to ₹2,264 crore as the lower volumes would partially negate the higher realisations.
b) Cement volumes expected to de-grow by about 9 per cent y-o-y to 5.2 million tonne primarily on account of sluggish cement demand during the quarter due to negative impact of de-monetization.
c) Net realisation is expected to increase about 5 per cent y-o-y to ₹4,354/tonne on account of increase in prices across North/Central/Western region markets.
d) EBITDA/tonne is expected to decline by about 5 per cent y-o-y to ₹509/t led by increase in operating costs (primarily energy cost & freight cost) which offsets the impact of higher realisation.
Outlook and valuation: We estimate cement volume to grow at 3.5 per cent CAGR during CY15-18E and realisation growth of about 4 per cent during the same period. We expect EBITDA/t to improve to ₹888/t by CY18E from ₹671/t in CY15, implying EBITDA CAGR of 14 per cent during the period. Implied standalone valuation at 17.5x EV/EBITDA Sept-18E looks expensive considering the low volume growth.
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