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Ambuja Cements: In line with expectations - Views on News from Equitymaster
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Ambuja Cements: In line with expectations
Feb 6, 2009

Performance summary
  • Standalone topline grows by 11% YoY during CY08 backed by growth in volumes and realisations.
  • Operating profits decline by 13% YoY as cost of operation grows at a faster pace compared to topline
  • Poor show at operating level and lower other income lead to 21% YoY fall in net profits
  • For the year ended CY08, on a consolidated basis, topline grows by 10% YoY and bottomline declines by 25% YoY.


Financial performance snapshot

Particulars Consolidated Standalone
(Rs m) CY07 CY08 Change CY07 CY08 Change
Net sales 57,186 62,618 9.5% 56,314 62,347 10.7%
Expenditure 36,833 44,903 21.9% 35,862 44,567 24.3%
Operating profit (EBITDA) 20,353 17,715 -13.0% 20,451 17,779 -13.1%
EBITDA margin 35.6% 28.3%   36.3% 28.5%  
Other income 1,938 1,755 -9.4% 1,935 1,754 -9.4%
Interest 771 326 -57.7% 759 321 -57.7%
Depreciation 2,372 2,601 9.7% 2,363 2,598 9.9%
Profit before tax/(loss) 19,149 16,543 -13.6% 19,265 16,615 -13.8%
Extraordinary item 7,955 3,033 -61.9% 7,859 3,083 -60.8%
Tax 9,433 5,679 -39.8% 9,433 5,676 -39.8%
Share of profit of associates 789 -   - -  
Net profit 18,461 13,897 -24.7% 17,691 14,023 -20.7%
Net profit margin 32.3% 22.2%   31.4% 22.5%  
No of shares (m)       1,522 1,523  
Diluted EPS (Rs)*         9.2  
P/E (times)         7.7  
*trailing twelve month earnings

What has driven performance in CY08?
  • Ambuja Cements witnessed 11% YoY growth in topline led by growth in volumes and better realisations. The company reported 5% YoY growth in volumes and nearly 6% YoY growth in realizations. The company has a dominant presence in western markets where realizations are generally on a higher side. Further, in these markets, company also enjoys brand premium.

    Cost break- up
      Consolidated Standalone
    (% of sales) CY07 CY08 CY07 CY08
    Consumption of raw materials 7.5% 8.9% 7.1% 8.8%
    Staff cost 3.7% 4.3% 3.7% 4.3%
    Power and fuel 17.8% 21.2% 18.1% 21.3%
    Outward freight 19.9% 19.8% 19.3% 19.6%
    Other expenditure 15.5% 17.6% 15.5% 17.6%

  • Operating profits declined by 13% YoY as cost of operation grew at a faster pace compared to topline. All the cost heads have increased a percentage of sales with power and fuel costs exerting the maximum pressure. Cost of crude oil started cooling off towards the end of CY08. The impact of the same is likely to start flowing in CY09 as companies went about clearing the old inventory first.

  • The costs are also on a higher side on account of additional charges borne by the company owing to change in inventory valuation method and because of change in discount rate valuation of employee benefit liabilities. Staff costs include charge on account of retirement benefits such as gratuity, post retirement medical benefits and compensated absences aggregating to Rs 341 m. The company has changed its inventory valuation method from annual weighted average to daily moving weighted average for items procured and monthly moving average in case of materials in process and finished goods. The same has been done in pursuant to the implementation of SAP ERP System. This has resulted in higher inventory cost to the tune of Rs 834 m.

  • Standalone net profits declined by 21% YoY on account of lower operating profits and lower other income. Furthermore, lower extraordinary income as compared to last year has also impacted profits adversely. Interest costs have however provided some respite by coming in lower by 57% YoY.

What to expect?
The cement industry faced a challenging year as costs scaled higher and slowing demand coupled with upcoming capacities left little headroom to pass on the high cost of operation. The way forward also seems challenging for the industry as upcoming capacities are expected to depress realizations. The issue of pricing power is worsened further by slowing demand.

In order to keep its costs under control, the company is planning to set up captive power plants, besides outlining investments to the tune of Rs 2.5 bn in ships and bulk terminal facilities to improve logistics capabilities for coastal traffic. In order to maintain its market share and cater to the long-term demand for the commodity, the company has outlined total investments of Rs 35 bn, which will add 6 MT by 2009 to the total current cement capacity of 18.5 MTPA. Of the planned capex, the company has commissioned 1.2 m tonnes grinding unit at Surat and 18.7 MW captive power plant has been set up at Rajastahn taking total captive power capacity to 300 MW. The expansion plans are progressing as per schedule.

At the current price of Rs 71, the stock is trading at over enterprise value (EV/tonne) of over Rs 3,800 as per our CY10 estimates. The company has ended the year in line with our expectations and at the current juncture is valued.

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