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Ambuja Cem: Outperforms peers in June qtr - Views on News from Equitymaster
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Ambuja Cem: Outperforms peers in June qtr
Jul 26, 2014

Ambuja Cements has announced its results for the second quarter of the calendar year 2014. During the quarter, the company's sales and net profit increased by 15.5% YoY and 26.1% YoY respectively. Here is our analysis of the results:

Performance summary
  • On a standalone basis, net sales increased by 15.5% during the quarter driven by 7.6% YoY rise in cement sales volumes.
  • Operating profits increased by 17.1% YoY; operating margins expanded marginally from 20.9% in 2QCY13 to 21.2% in 2QCY14.
  • While depreciation charges increased marginally by 1.5% YoY, finance costs increased by 18.6% YoY.
  • Net profit increased by 26.1% YoY; net profit margin expanded from 13.8% in 2QCY13 to 15.1% in 2QCY14.
  • During the first half of the calendar year 2014, sales and profit increased by 9.4% YoY and 14.4% YoY respectively.
  • The company's board of directors has declared an interim dividend of Rs 1.8 per share.

Standalone financial performance snapshot
(Rs m) 2QCY13 2QCY14 Change 1HCY13 1HCY14 Change
Net sales 23,438 27,064 15.5% 48,866 53,442 9.4%
Expenditure 18,537 21,323 15.0% 38,575 41,945 8.7%
Operating profit (EBITDA) 4,900 5,741 17.1% 10,291 11,497 11.7%
EBITDA margin 20.9% 21.2%   21.1% 21.5%  
Other income 1071 1,518 41.7% 2707 2,952 9.0%
Depreciation 1,223 1,242 1.5% 2,427 2,439 0.5%
Interest 171 203 18.6% 303 364 19.9%
Profit before tax & exceptional items 4,578 5,815 27.0% 10,268 11,647 13.4%
Exceptional gain/ (loss) - -   - -  
Profit before tax 4,578 5,815 27.0% 10,268 11,647 13.4%
Tax 1,336 1,728 29.4% 2,147 2,360 9.9%
Effective tax rate 29.2% 29.7%   20.9% 20.3%  
Profit after tax 3,242 4,087 26.1% 8,121 9,287 14.4%
PAT margin 13.8% 15.1%   16.6% 17.4%  
No of shares (m)       1,543.8 1,547.2  
Diluted EPS (Rs)*         9.1  
P/E (times)         23.2  
*trailing twelve month earnings

What has driven the performance in 2QCY14?
  • On a standalone basis, Ambuja Cements' net sales increased by 15.5% YoY during the quarter ended June 2014. The company reported sales volumes of 5.79 million tonnes, higher by 7.6% YoY (5.38 m tonnes in 2QCY13).

  • On the cost front, all cost heads reported a decline as a proportion of sales, barring raw material costs which increased by 1.6% YoY (as a percentage of net sales). Owing to better cost control, operating profits grew by 17.1% YoY in 2QCY14. Operating profit margins expanded marginally from 20.9% in 2QCY13 to 21.2% in 2QCY14.

    Operating cost break-up
    (Rs m) 2QCY13 2QCY14 Change
    Raw materials consumed 1,759 2,204  
    Purchase of stock-in-trade - 59  
    Change in inventory (625) (520)  
    Total raw materials cost 1,134 1,743 53.7%
    % of Net sales 4.8% 6.4%  
    Employee expenses 1,319 1,407 6.7%
    % of Net sales 5.6% 5.2%  
    Power & fuel expenses 5,560 6,242 12.3%
    % of Net sales 23.7% 23.1%  
    Freight & forwarding expenses 6,056 6,902 14.0%
    % of Net sales 25.8% 25.5%  
    Other expenses 4,468 5,029 12.5%
    % of Net sales 19.1% 18.6%  
    Total operating expenditure 18,537 21,323 15.0%
    % of Net sales 79.1% 78.8%  

  • Other income grew sharply by 41.7% YoY during the quarter. Depreciation charges and interest expenses increased by 1.5% YoY and 18.6% YoY during the period.

  • Tax expenses grew by 29.4% YoY as the effective tax rate increased from 29.2% in 2QCY13 to 29.7% in 2QCY14.

  • Owing to the improvement in topline and better margin profile during the quarter, net profit rose by 26.1% YoY. Net profit margins expanded from 13.8% in 2QCY13 to 15.1% in 2QCY14.

  • During the first half of the calendar year 2014, sales and net profit grew by 9.4% YoY and 14.4% YoY respectively. Net profit margin improved from 16.6% in 1HCY13 to 17.4% in 1HCY14.

  • The company's board of directors has declared an interim dividend of Rs 1.8 per share for the calendar year 2014. The company has fixed 31st July, 2014 as the record date for the payment of dividend.
What to expect?

The company's performance during the quarter has been significantly better compared to its major peers on both major fronts - growth in cement volume sales and improvement in profit margins.

While macro challenges in the form of slow recovery in the construction activity and persistently high inflation continue to pose a threat to pick up in cement demand, the recent change in leadership at the Centre, the new business-friendly government's focus on housing and infrastructure development should augur well for the cement sector in the coming times. As such, the long term prospects of the cement sector seem positive.

At the current prices of Rs 212, the stock is trading at 23.2 times its trailing twelve month standalone earnings. We are currently in the process of updating and revising our estimates for the company. We shall share our latest view and target price for the stock soon.

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