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Ambuja Cem: A good show of resilience - Views on News from Equitymaster
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Ambuja Cem: A good show of resilience
Feb 4, 2011

Ambuja Cements has announced its CY10 results. The company has reported a 4.4% YoY and 3.8% YoY rise in sales and net profits respectively. Here is our analysis of the results:

Performance summary
  • Revenue increases by 4.4% YoY mainly on the back of higher domestic volumes.
  • During the year, operating costs rise 6.8%, reducing the EBITDA margin by 1.7% YoY.
  • While operating profits drop marginally by 2.3%, the bottomline witnesses a rise of 3.8% YoY.
  • Net profit margins remain almost the same due to lower effective tax rate.


(Rs m) CY09 CY10 Change
Net sales 70,769 73,902 4.4%
Expenditure 52,112 55,672 6.8%
Operating profit (EBITDA) 18,657 18,230 -2.3%
EBITDA margin 26.4% 24.7%  
Other income 2558 2476 -3.2%
Interest 224 487 117.1%
Depreciation 2973 3,872 30.3%
Exceptional item 0 265  
Profit before tax/(loss) 18,018 16,612 -7.8%
Tax 5849 3983 -31.9%
Profit after tax/(loss) 12,168 12,630 3.8%
Net margin 17.2% 17.1%  
No of shares (m)   1529.9  
Diluted EPS (Rs)   8.3  
P/E (times)   14.9  

What has driven performance in CY10?
  • Ambuja Cements’ revenues rose by 4.4% YoY during the year ended 2010. Domestic sales volumes increased by 8% YoY from 18 m tonnes to 19.5 m tonnes. However, a reduction in average realisations played spoilsport.

  • Operating costs increased by 6.8% YoY during CY10. However, raw material costs declined by nearly Rs 4,500 m as clinker purchases were significantly reduced as a result of the commissioning of new capacities in early 2010. Hence, EBITDA margins fell only marginally by 1.7% from 26.4% in CY09 to 24.7% in CY10.

  • Net profits rose by 3.8% YoY in CY10. Partly, this was a result of an exceptional income due to the sale of an investment. Lower effective tax rate due to tax credit relating to earlier years also helped the bottomline. Hence, net profit margin remained almost unchanged at 17%.

  • The board has recommended a final dividend of Rs 1.4 per share. Together with the interim dividend (Rs 1.2 per share), the total dividend for the year stands at Rs 2.6 per share.

  • During the first quarter of 2010, commercial production commenced at two new 2.2 m tonne clinkerisation units as well as two new 1.5 m tonne grinding facilities. In addition, two captive power units of 33 MW and 30 MW were commissioned. Following completion of these projects at a total cost of approximately Rs 27 bn, the company’s annual cement capacity has increased to 25 m tonnes. This will increase further in 2011 to 27 m tonnes, following completion of additional grinding capacity. A wind power project was commenced in Gujarat during the last quarter. In October 2010 the company signed an agreement with the Rajasthan State Industrial Development and Investment Corporation, to set up a 2.2 m tonne clinkerisation unit.

What to expect?
The cement industry witnessed a challenging year. While demand off-take was subdued on the one hand due to a slower pace of construction activity, the significant capacity additions by the industry over the previous two years resulted in pricing pressures. The extended monsoons also had a negative impact.

While the economy is poised to enter an era of robust growth, inflation poses an immediate challenge. Consequently, input costs are expected to remain high. Also, the cement demand-supply imbalance is set to continue for some time, and therefore, margins are bound to remain under pressure.

At the current price of Rs 123, the stock is trading at about 14.9 times trailing twelve month earnings. We shall update our Research Report shortly.

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