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Ambuja Cements: Still riding the wave - Views on News from Equitymaster
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Ambuja Cements: Still riding the wave
Apr 23, 2010

Ambuja Cements has announced its 1QCY10 results. The company has reported a 7.8% YoY and 38.4% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by 7.8% YoY. The growth has come in on account of higher volumes and improved cement prices.
  • During the quarter, operating costs report slower growth resulting in EBITDA margin expansion of 3%.
  • While operating profits report 19% YoY growth, bottomline growth stands at 38.4% YoY. Higher other income, profit from sales of investments and lower tax outgo supported the growth.
  • During the quarter the company has formed a JV for captive coal mining. In the join venture company, Wardha Vaalley Coal Field Pvt. Ltd, the company holds 27.27% stake.


Financial performance snapshot
(Rs m) 1QCY09 1QCY10 Change
Net sales 18,456 19,902 7.8%
Expenditure 13,228 13,675 3.4%
Operating profit (EBITDA) 5,228 6,227 19.1%
EBITDA margin 28.3% 31.3%  
Other income 416 546 31.2%
Interest 52 108 106.1%
Depreciation 686 767 11.8%
Profit before tax/(loss) 4,905 5,897 20.2%
Exceptional items - 201  
Tax 1,565 1,476 -5.7%
Net profit 3,341 4,622 38.4%
Net profit margin 18.1% 23.2%  
No of shares (m) 1522.6 1,523.7  
Diluted EPS (Rs)*   8.8  
P/E (times)   13.6  
*trailing twelve month earnings

What has driven performance in 1QCY10?
  • Ambuja Cements revenues grew by 7.8% YoY during 1QCY10. The growth has been supported by both higher volumes and better cement prices. Domestic sales volumes increased by 7.7% YoY, while exports have reported declining trend. Fall in exports has capped overall growth in volumes at 4.3% YoY. Thus the growth has been supported by better demand for the commodity in the domestic markets.

  • Slower growth in cost of operation led operating profits grew at a faster rate of 19.1% YoY. During the quarter the company was able to lower cost of raw material and power and fuel costs. These costs account for nearly 40% of the total operating costs. Fall in these major costs led to higher profitability. Raw material costs were lower because of lower clinker purchases. On the other hand energy costs were lower on account of the company initiative to set up captive power plants. Also on account of significant decline in imported coal cost. This benefit is less likely to sustain going forward. This is because coal costs have seen an upward trend recently. If this sustains then the input cost for the company will increase in future.

  • Profit before tax grew by nearly 20.2% YoY on the back of higher other income. Excluding other income, growth in PBT stood almost in line with operating profits at around 19.2% YoY.

  • However, at the net level the company has reported robust growth of 38.4% YoY. The growth has been primarily led by lower tax out go. Higher other income and profits from sales of investments also supported the margin expansion.

What to expect?
Ambuja Cements’ expansion plans are progressing as per schedule. The company cement production capacity has been scaled up to 25 MTPA. 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. Thus volume would be higher. However, the margin may come under pressure. This is on two counts. Primarily on account of rising input costs. Second being, new capacities coming on board which are expected to exert pressure on cement prices in the medium term.

At the current price of Rs 120, the stock is fairly valued at over Rs 5,500 on an enterprise value per tonne (EV/tonne) basis as per our CY12 estimates. We advise investors to practice caution as the stock is trading at the upper end of our valuation band.

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