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Ambuja Cements: Mixed performance - Views on News from Equitymaster
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Ambuja Cements: Mixed performance
Oct 25, 2008

Performance summary
  • Topline grows by nearly 8% YoY backed by growth in volumes and realisations.

  • Higher costs of operation continue to exert pressure on EBITDA margins that contract by nearly 6% YoY.

  • Lower operating margins, higher interest costs and depreciation charges dent net margins by 3% YoY.

  • If one excludes the extraordinary item (diminution in value of investment in subsidiary) then the net profits decline by nearly 16% YoY.

Financial performance snapshot
(Rs m) 3QCY07 3QCY08 Change 9mCY07 9mCY08 Change
Net sales 12,871 13,873 7.8% 41,574 46,119 10.9%
Expenditure 8,495 9,928 16.9% 26,060 32,272 23.8%
Operating profit (EBITDA) 4,376 3,945 -9.9% 15,514 13,847 -10.7%
EBITDA margin 34.0% 28.4%   37.3% 30.0%  
Other income 351 479 36.5% 1,446 1,235 -14.6%
Interest 56 59 5.4% 269 173 -35.8%
Depreciation 584 654 12.1% 1,765 1,888 7.0%
Profit before tax/(loss) 4,088 3,711 -9.2% 14,927 13,021 -12.8%
Extraordinary item (270) -   7,884 3,083  
Tax 1,117 1,210 8.4% 5,897 4,571 -22.5%
Net profit 2,701 2,501 -7.4% 16,914 11,533 -31.8%
Net profit margin 21.0% 18.0%   40.7% 25.0%  
No of shares (m)       1,522 1,523  
Diluted EPS (Rs)*         8.1  
P/E (times)         5.6  
*trailing twelve month earnings

What has driven performance in 3QCY08?
  • The 4% YoY growth in volumes and higher realisations led to near 8% YoY growth in Ambuja Cement's topline during 3QCY08. During the quarter, the company witnessed 20% YoY growth in export volumes, while the domestic sales volumes increased by 3% YoY. Thus, the bulk of the growth in net sales has come in because of growth in volumes. Despite weakening demand and increasing competition, the company was able to report growth in volumes as well as realisations.

    Cost break- up
    (% of sales) 3QCY07 3QCY08 9mCY07 9mCY08
    Consumption of raw materials 6.8% 5.3% 7.2% 8.7%
    Staff cost 4.8% 4.7% 3.7% 4.2%
    Power and fuel 17.8% 22.6% 16.8% 19.9%
    Outward freight 20.8% 21.2% 20.5% 20.3%
    Other expenditure 15.9% 17.8% 14.5% 16.9%

  • Operating profits declined by nearly 10% YoY as costs grew at a faster pace as compared to topline. The overall cost of operation increased by nearly 17% YoY during 3QCY08. Rising costs of operation is an industry wide issue currently. The rising fuel costs have not only increased power costs but transportation costs too. Transporters seem to have increased freight rates with increase in fuel costs.

  • Despite the higher other income, which increased by nearly 37% YoY, bottomline registered a 7% YoY decline. Interest costs and depreciation charges rose on account of the companyˇ¦s expansion plans. If one excludes extraordinary item in 3QCY07, the drop in net profits was steeper at 15.8% YoY.

What to expect?

The prospects of the cement sector for the long term remain intact. However, in the near to medium term, the companyˇ¦s margins are likely to remain under pressure on account of two factors namely the escalating cost of operations and planned capacities coming on stream causing supply to outstrip demand.

In order to keep its costs under control the company is planning to set up captive power plants, besides outlining investments to the tune of Rs 2.5 bn in ships and bulk terminal facilities to improve logistics capabilities for coastal traffic. In order to maintain its market share and cater to the long-term demand for the commodity, the company has outlined total investments of Rs 35 bn, which will add 6 MT by 2009 to the total current cement capacity of 18.5 MTPA.

At the current price of Rs 45, the stock is very attractively valued at over Rs 2,000 on an enterprise value per tonne (EV/tonne) basis as per our CY10 estimates. Taking into account 9mCY08 performance, the company is likely to end the calendar year almost in line with our full year estimates as far as the topline is concerned. However, on the bottomline front, the company will outperform our estimates on account of extraordinary income earned (profit on sale of investments in associates and sale of land) and better realisations.

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Feb 23, 2018 01:41 PM


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