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Ambuja Cem: Topline grows but margins drop - Views on News from Equitymaster
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Ambuja Cem: Topline grows but margins drop
Feb 16, 2012

Ambuja Cements has announced its results for the quarter and financial year ended December 2011. The company has reported 15% YoY rise in sales and 3% YoY decline in net profits during the calendar year. Here is our analysis of the results.

Performance summary
  • On a standalone basis, net sales increase by 30% YoY during 4QCY11.
  • Operating margins improve marginally from 17.6% in 4QCY10 to 18.1% in 4QCY11.
  • Net profits rise at a slower pace during 4QCY11 due to exceptional losses and higher effective tax rate.


Standalone financial performance snapshot
(Rs m) 4QCY10 4QCY11 Change CY10 CY11 Change
Net sales 17,885 23,291 30.2% 73,902 85,145 15.2%
Expenditure 14,738 19,081 29.5% 55,666 66,084 18.7%
Operating profit (EBITDA) 3,146 4,211 33.8% 18,236 19,061 4.5%
EBITDA margin 17.6% 18.1%   24.7% 22.4%  
Other income 767 937 22.1% 2476 3188 28.8%
Depreciation 1086 1238 14.0% 3872 4452 15.0%
Interest 209 99 -52.8% 487 526 8.1%
Exceptional gains/ (losses) 65 -243   265 -243  
Profit before tax/(loss) 2,684 3,568 33.0% 16,619 17,029 2.5%
Tax 102 544 432.0% 3983 4740 19.0%
Net profit 2,581 3,024 17.2% 12,636 12,289 -2.8%
Net profit margin 14.4% 13.0%   17.1% 14.4%  
No of shares (m)       1529.9 1534.4  
Diluted EPS (Rs)         8.0  
P/E (times)         21.4  

What has driven performance in CY11?
  • On a standalone basis, Ambuja Cements' net sales rose by 15.2% YoY during the calendar year ended December 2011. The rise in revenue was led by a 4.5% YoY rise in sales volume and a 10.7% YoY increase in cement realisations.

  • However, operating profit rose at a slower rate of 4.5% YoY as inflationary pressures caused all major cost heads to register an increase. Operating margins declined by 230 basis points (2.3%) from 24.7% in CY10 to 22.4% in CY11.

  • It must be noted that the company has retrospectively changed its method of measurement of compensation cost relating to ESOP (employee stock options plan) from intrinsic value method to fair value method. Accordingly, the company has recognised an additional expense of Rs. 332.1 m during CY11. Of this, Rs 89.6 have been accounted under employee costs, while Rs 242.5 m which is an amount relating to the earlier period has been disclosed as an exceptional item.

  • At the bottomline level, net profits declined marginally by 2.8% YoY during the period. The net profit margin declined from 17.1% in CY10 to 14.4% in CY11.

  • The company's board of directors has recommended a final dividend of Rs 1.8 per share. Ambuja has already paid an interim dividend of Rs 1.4 per share.

  • During the calendar year, Ambuja commissioned two cement mills at the Bhatapara Plant and Maratha Cement Works. On account of these additions and minor rationalization at two other plants, the company's total grinding capacity now stands increased at 27.35 million tonnes (mt).

  • The company also commissioned five wind turbine generators at Kutch (Gujarat) with a total capacity of 7.5 MW.

  • Ambuja acquired Nepal-based Dang Cement Industries Pvt Ltd for Rs 191.3 m. It acquired 50% shareholding in Counto Microfine Products Pvt Ltd, a Goa-based joint venture (JV) company for Rs 100 m. It has acquired 60% shareholding in Dirk India Pvt Ltd, a fly ash processing company, for Rs 165.1 m.

What to expect?
Ambuja's margins declined during the year on account of higher power and freight expenses, one-time charge arising out of change in method of valuation of ESOP cost and higher effective tax rate.

Though there is pressure on cement demand on account of overall slowdown in housing and construction, infrastructure investment for the 12th Five-Year Plan is expected to be about US$ 1 trillion. This will augur well for cement demand and help in balancing the current overcapacity scenario. On the cost front, some pressures may continue to persist. At the current price of Rs 171, the stock of Ambuja Cements is trading at 21.4 times its trading twelve-month earnings, making it expensively valued. We maintain a cautious view on the stock from a 2-3 year perspective.

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