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Ambuja Cem: An unimpressive year - Views on News from Equitymaster

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Ambuja Cem: An unimpressive year
Feb 7, 2014

Ambuja Cements has announced its results for the fourth quarter and full calendar year 2013. During the quarter, the company's sales declined by 5.3% YoY while tax credits boosted net profits by 49.3% YoY. Here is our analysis of the results:

Performance summary
  • Net sales rise by 9% YoY during 3QFY14.
  • Operating profit growth came in at 6% YoY.
  • Profit before tax declined by 4% YoY on the back of lower other income and higher depreciation and interests charges.
  • Net profits decline by 8% YoY (rise by about 8% YoY after making adjustments).
  • During 9mFY14, revenues and profits rise by 19% YoY and 6% respectively.

Standalone financial performance
  Standalone Consolidated
(Rs m) 4QCY12 4QCY13 Change CY12 CY13 Change
Net sales 23,133 21,913 -5.3% 97,395 91,180 -6.4%
Expenditure 18,851 19,024 0.9% 73,216 75,491 3.1%
Operating profit (EBITDA) 4,282 2,890 -32.5% 24,179 15,689 -35.1%
EBITDA margin 18.5% 13.2%   24.8% 17.2%  
Other income 1100 1,063 -3.4% 4040 4,651 15.1%
Depreciation 1,855 1,228 -33.8% 5,687 4,937 -13.2%
Interest 243 169 -30.2% 785 668 -14.9%
Profit before tax & exceptional items 3,284 2,556 -22.2% 21,748 14,735 -32.2%
Exceptional gain/ (loss) - -   (2,791) 248  
Profit before tax 3,284 2,556 -22.2% 18,957 14,983 -21.0%
Tax 1,164  (610)   6,039 2,199 -63.6%
Effective tax rate 35.5% NA   31.9% 14.7%  
Profit after tax 2,120 3,165 49.3% 12,918 12,784 -1.0%
PAT margin 9.2% 14.4%   13.3% 14.0%  
Minority interest       (14) (1)  
Net profit       12,932 12,786  
No of shares (m)       1542.2 1,545.9  
Diluted EPS (Rs)*         8.3  
P/E (times)         19.8  
*trailing twelve month earnings

What has driven performance in 3QFY14?
  • On a standalone basis, Ambuja Cements' net sales declined by 5.3% YoY during the quarter ended December 2013. The company reported sales volumes of 5.53 m tonnes, marginally lower by 1.4% YoY (5.61 m tonnes in 4QCY12). Cement realisations also declined during the quarter owing to the sluggish demand.

  • On the cost front, employee expenses and power & fuel costs declined by 0.8% YoY and 0.4% YoY respectively. However, raw material costs (including changes in inventory), freight & forwarding expenses and other expenses increased by 3.6% YoY, 1.2% YoY and 1.7% YoY respectively (as a percentage of net sales).

    Operating cost break-up
    (Rs m) 4QCY12 4QCY13 Change
    Raw materials consumed 1,625 1,609  
    Purchase of stock-in-trade - 7  
    Change in inventory (193) 533  
    Total raw materials cost 1,433 2,150 50.0%
    % of Net sales 6.2% 9.8%  
    Employee expenses 1,367 1,197 -12.4%
    % of Net sales 5.9% 5.5%  
    Power & fuel expenses 5,473 5,007 -8.5%
    % of Net sales 23.7% 22.8%  
    Freight & forwarding expenses 5,816 5,781 -0.6%
    % of Net sales 25.1% 26.4%  
    Other expenses 4,764 4,890 2.7%
    % of Net sales 20.6% 22.3%  
    Total operating expenditure 18,851 19,024 0.9%
    % of Net sales 81.5% 86.8%  

  • Operating profits dipped by 32.5% YoY in 4QCY13. Operating profit margins declined from 18.5% in 4QCY12 to 13.2% in 4QCY13.

  • Other income reported a marginal decline of 3.4% YoY during the quarter. While depreciation charges and interest expenses declined by 33.8% YoY and 30.2% YoY during the period.

  • Owing to the poor operating performance, profit before taxes and exceptional items dropped by 22.2% YoY.

  • As against tax expenses of Rs 1,164 m during 4QCY12, the company reported net tax credit of Rs 610 m in 4QCY13 on account of reversal of tax provision relating to earlier years.

  • Owing to the tax credit, net profits increased by 49.3% YoY. Net profit margins expanded from 9.2% in 4QCY12 to 14.4% in 4QCY13.

  • For the full year, consolidated net sales declined by 6.4% YoY. Cement sales volumes declined by 1.8% YoY to 21.6 million tonnes in CY13 as against 21.99 million tonnes in CY12.

  • At the bottomline level, consolidated net profit declined by 1.1% YoY during the year.

  • The company's board of directors has recommended a final dividend of Rs 2.2 per share the calendar year 2013. Along with the interim dividend of Rs 1.4 per share, the total dividend for the year stands at Rs 3.6 per share. At the current stock price level, the dividend yield stands at 2.2%.

  • During the year, the company commissioned a bulk packing terminal of 1 million tonne capacity at Mangalore, Karnataka.

  • The company's 0.8 million tonne expansion project at Sankrail grinding unit in West Bengal is expected to be commissioned in 2015.

  • In addition, the company is expanding its grinding capacity by 0.8 million tonnes at Rabriyat unit Rajasthan by installing a roller press. The project is likely to be commissioned in the current year. The company is also constructing a railway track to connect the plant with railway junction. The capex for this is Rs 2.5 bn and the same is expected to become operational by 2016.

  • The company is also incurring a capex of Rs 2 bn towards a project which focuses on the usage of alternate fuels at five integrated plants.
What to expect?
Weak demand growth, lower cement realisations and persistent inflationary pressures have adversely impacted the performance of Ambuja Cements during the quarter. Given that cement demand is closely linked to the growth of the overall economy, the poor economic conditions are likely to hamper cement demand growth over the medium term. Moreover, Holcim’s restructuring plans are expected to drain Ambuja’s cash balances.

At the current prices of Rs 164, the stock is trading at 19.8 times its trailing twelve month standalone earnings. We continue to maintain our 'Sell' view on the stock from a 2-year perspective.

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