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Ambuja Cements: Hit by rising costs
Feb 4, 2010

Performance summary
  • Revenues grow by 13% YoY largely led by higher volumes and realisations.
  • The company reports 6% YoY growth in sales volume during CY09.
  • While operating profits grow by 7.5% YoY, EBITDA margins contract by 1.4% as cost of operation grows at a faster rate as compared to the topline.
  • Net profits decline by 12% YoY, despite higher other income and lower interest cost. This is because of absence of extraordinary income.
  • Excluding extraordinary income, bottomline reports 12% YoY growth.
  • The Board of Directors has recommended final dividend of Rs 1.2 per equity share. The total dividend for the year along with interim dividend works out to Rs 2.4 per equity share. This translates into a dividend yield of 2.4%.


Financial performance snapshot
(Rs m) CY08 CY09 Change
Net sales 62,474 70,769 13.3%
Expenditure 45,114 52,112 15.5%
Operating profit (EBITDA) 17,360 18,657 7.5%
EBITDA margin 27.8% 26.4%  
Other income 2,111 2,558 21.2%
Interest 326 224 -31.2%
Depreciation 2,601 2,973 14.3%
Profit before tax/(loss) 16,544 18,018 8.9%
Extraordinary items 3,033 -
Profit from extraordinary activities 19,577 18,018 -8.0%
Tax 5,679 5,849 3.0%
Net profit 13,897 12,168 -12.4%
Net profit margin 22.2% 17.2%  
No of shares (m) 1,523 1,524  
Diluted EPS (Rs)*   8.0  
P/E (times)   12.8  
*trailing twelve month earnings

What has driven performance in CY09?
  • Ambuja Cements revenues grew by 13.3% YoY during CY09. The growth has been driven by domestics despatches that have increased by 6.1% YoY. During the period under consideration the company reported 9.6% YoY decline in export volumes to 750 thousand tonnes. The export volumes were lower as demand in Gulf countries contracted owing to economic slowdown and at the same time new capacities came on stream in Saudi Arabia. Thus, the topline growth has been backed by higher cement prices and increase in domestic sales.

  • Cost operation grew at a faster rate as compared to growth in sales. This resulted in operating profits growing at a slower pace of 7.5% YoY during CY09. During the year the raw material costs were significantly higher. This was mainly on account of higher clinker purchases made by the company to be able to cater to the rising demand. In case of other cost heads the company was able to contain rise in costs. The company’s move to optimize fuel mix and resort to cheaper alternate resources such as petcoke, biomass enabled it to restrict growth in power and fuel costs.

  • Profit before tax grew by nearly 9% YoY on the back of lower interest costs and higher other income. Excluding other income, growth in PBT stood almost in line with operating profits at around 7.1% YoY.

  • However, net profits declined by 12% YoY. This is mainly on account of absence of extraordinary income in CY09. If one excludes extraordinary income then the growth in growth in bottomline is around 12% YoY.

What to expect?
Ambuja Cements’ expansion plans are progressing as per schedule. It plans to scale up its capacity to 27 MTPA by the end of 2010 to maintain its market leadership and be a part of the growth process. To achieve the same the company plans to add new production facilities and captive power plants to keep check on rising cost of operation. The company has also outlined logistics projects (three new ships under construction, focusing on rail connectivity at several locations) to improve connectivity and arrest growth in cost of operation.

The prospects of the cement sector for the long term remain intact. This is mainly on account of government initiatives in the infrastructure and housing sectors that are likely to be the main drivers of growth for the industry in the long run. Although the company has fetched better realisations, we do not foresee the trend to continue in the future with new capacities coming on board. While the company may be able to achieve growth in volumes, prices are likely to come under pressure resulting in lower realisations, which in turn will exert pressure on margins.

The company has ended the year in line with our expectations. At the current price of Rs 102, the stock is fairly valued at over Rs 6,100 on an enterprise value per tonne (EV/tonne) basis as per our CY11 estimates. We advise investors to practice caution as the stock is trading at the upper end of our valuation band.

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