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Ambuja Cements: Driven by change in sales mix - Views on News from Equitymaster
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Ambuja Cements: Driven by change in sales mix
Oct 29, 2009

Performance summary
  • Revenues grow by 16% YoY largely led by higher realisations.
  • The company reports 5% YoY growth in sales volume during 3QCY09.
  • As cost of operations continue to grow at a faster rate as compared to the topline, operating margins contract marginally by 1.1%.
  • Profit before tax (PBT) grows by 19.2% YoY. Excluding other income, PBT grows in line with operating profits, reporting around 12.1% YoY growth.
  • Bottomline grows at a faster rate as compared to PBT on account of less than proportionate growth in tax charges.


Financial performance snapshot
(Rs m) 3QCY08 3QCY09 Change 9mCY08 9mCY09 Change
Net sales 13,869 16,110 16.2% 45,984 53,040 15.3%
Expenditure 10,008 11,809 18.0% 32,423 38,715 19.4%
Operating profit (EBITDA) 3,861 4,300 11.4% 13,561 14,325 5.6%
EBITDA margin 27.8% 26.7%   29.5% 27.0%  
Other income 563 894 58.9% 1,521 2,002 31.6%
Interest 59 52 -11.1% 173 157 -9.3%
Depreciation 654 719 9.9% 1,888 2,110 11.7%
Profit before tax/(loss) 3,711 4,423 19.2% 13,021 14,061 8.0%
Extraordinary items - -   3,083 - -100.0%
Profit from extraordinary activities 3,711 4,423 19.2% 16,104 14,061 -12.7%
Tax 1,210 1,238 2.3% 4,571 4,289 -6.2%
Net profit 2,501 3,185 27.3% 11,533 9,772 -15.3%
Net profit margin 18.0% 19.8%   25.1% 18.4%  
No of shares (m)       1,523 1,523  
Diluted EPS (Rs)*         8.1  
P/E (times)         10.9  
*trailing twelve month earnings

What has driven performance in 3QCY09?
  • Ambuja Cements reported a topline growth of 16.2% YoY during 3QCY09 backed by 5% YoY growth in domestic volumes and higher realisations. During the period under consideration the company reported 50% YoY decline in export volumes to 150 thousand tonnes. Thus, it is clear that growth has been driven by domestic sales. The change in sales mix between domestic and export sales have proved beneficial as cement realisations domestically were attractive. The global economic slowdown has hurt export volumes of the company. Domestically, the growth in demand was sustained on account of ongoing construction activity in rural and semi urban areas along with government’s increased spend on infrastructural activity.

  • Rising cost of operation did limit growth in operating profits to 11% YoY. The power and fuel costs have reduced as the company has now cleared high cost coal inventory. The prices of key input costs have moderated to some extent. The same has capped the growth in overall cost of operation. Cost of inputs such as gypsum is still on a higher side.

  • Profit before tax grew by 19% YoY on the back of lower interest costs and nearly 59% YoY growth in other income. Excluding other income, growth in PBT stood almost in line with operating profits at around 12% YoY.

  • Net profits report 27% YoY growth during the quarter. Bottomline grows at a faster rate as compared to PBT on account of less than proportionate growth in tax charges.

What to expect?
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. There are early signs of recovery in urban markets. Ambuja Cements’ expansion plans are progressing as per schedule. Although the company has fetched better realisations, we do not foresee the trend to continue in the future with new capacities coming on board. The capacities have started coming on stream and are exerting pressure on prices in certain markets, particularly southern and central region.

At the current price of Rs 88, the stock is trading at an enterprise value (EV/tonne) of over Rs 5,000 as per our CY11 estimates. The stock is trading at the upper end of our valuation band and hence we advise investors to practice caution while investing in the stock.

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