Centrum Broking
Ambuja Cements (Sell)
CMP: ₹241.70
Target: ₹200
Ambuja Cements Ltd, a part of the global conglomerate LafargeHolcim, is among the leading cement companies in India. Ambuja Cements has provided hassle-free, home-building solutions with its unique sustainable development projects and environment-friendly practices since it started operations. Currently, Ambuja Cement has a cement capacity of 29.65 million tonnes with five integrated cement manufacturing plants and eight cement grinding units across the country.
We maintain our Sell rating on Ambuja Cements and further lower our TP to ₹200. Ambuja Cements’ standalone EBITDA dipped 13 per cent y-o-y in Q1CY17 led by a sharp 7 per cent cost increase which negated the benefits of 3 per cent/3 per cent volume and NSR growth. PAT growth appears strong owing to high goodwill amortisation booked in Q1CY16 and a lower tax rate. Unitary EBITDA declined 15 per cent y-o-y to ₹655 (versus our estimate of ₹809). In the absence of any near-term capacity expansion, Ambuja Cements’ ability to capitalise on the expected cement demand recovery remains limited. Even visibility on synergy (with ACC Limited) led cost improvement remains low.
Key upside risks: Stronger-than-estimated sales growth and price recovery, and lower-than-estimated cost inflation.