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Ambuja Cem: Improved sales & profitability - Views on News from Equitymaster
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Ambuja Cem: Improved sales & profitability
Jul 26, 2012

Ambuja Cements has announced its results for the second quarter of the calendar year 2012 (2QCY12). During the quarter, the company's sales and net profits reported a rise of 18% YoY and 35% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increase by 18% YoY during the quarter driven by higher volumes and realisations.
  • Operating margins expand by 1.3% as power and fuel costs witness a decline.
  • Other income increases by 31% YoY, while interest costs go up by 19% YoY.
  • Improvement in operations results in 35% YoY rise in net profits. Net margins improve from 16% in 2QCY11 to 18.3% in 2QCY12.

Standalone financial performance snapshot
(Rs m) 2QCY11 2QCY12 Change 1HCY11 1HCY12 Change
Net sales 21,764 25,660 17.9% 43,889 51,993 18.5%
Expenditure 15,911 18,436 15.9% 31,865 37,314 17.1%
Operating profit (EBITDA) 5,853 7,223 23.4% 12,023 14,678 22.1%
EBITDA margin 26.9% 28.2%   27.4% 28.2%  
Other income 693 908 31.0% 1314 2045 55.7%
Depreciation 1,074 1,215 13.2% 2,135 2,424 13.5%
Interest 152 180 18.8% 290 348 20.2%
Profit before tax & exceptional items 5,320 6,736 26.6% 10,912 13,951 27.8%
Exceptional gain/ (loss) - -   - (2,791)  
Tax 1,845 2,047 10.9% 3,362 3,348 -0.4%
Net profit 3,475 4,689 34.9% 7,550 7,811 3.5%
Net profit margin 16.0% 18.3%   17.2% 15.0%  
No of shares (m)       1531.7 1538.1  
Diluted EPS (Rs)*         8.2  
P/E (times)         20.8  
*trailing twelve month earnings

What has driven performance in 2QCY12?
  • On a standalone basis, Ambuja Cements' net sales rose by 17.9% YoY during the quarter ended June 2012. Cement sales volumes rose by 7.3% from 5.16 m tonnes in 2QCY11 to 5.54 m tonnes in 2QCY12. The balance addition to the topline was due to improvement in cement realisations.

  • On the cost front, major cost heads witnessed some moderation. Power & fuel and other expenditure declined by 2.5% YoY and 1.8% YoY respectively (as a percentage of net sales). As a result, operating profits grew by 23.4% YoY. Operating margins improved from 26.9% in 2QCY11 to 28.2% in 2QCY12.

  • Other income rose by 31% YoY during the quarter. On the other hand, interest costs were also higher by 18.8% YoY during the period.

  • At the bottomline level, net profits rose by 34.9% YoY. Net margins improved from 16% in 2QCY11 t 18.3% in 2QCY12.

  • The company's board of directors has recommended an interim dividend of Rs 1.4 per share.

What to expect?
After a good set of numbers in the March quarter, Ambuja Cements posted healthy growth for yet another quarter. The delayed monsoons helped cement sales as construction activity went on uninterrupted. On account of higher cement sales and operational efficiency, the company was able to improve its margins compared to the corresponding period of the previous years. However, the inflationary environment continues to persist and cost pressures are likely to keep margins below historical levels.

In an order dated June 20, 2012, the Competition Commission of India (CCI) imposed a penalty of Rs 11,639.1 m on Ambuja Cements for alleged cartelisation and price manipulation. The company believes that it has a good case and is taking steps to appeal against the Order before the Competition Appellate Tribunal. As such, it has made no provision for the same in its books.

At the current prices of Rs 170 the stock is trading at 20.8 times its trailing twelve month standalone earnings. Given the high valuations, we maintain our 'Sell' view on the stock from a two-year perspective.

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