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Focus on completion of expansion
Ambuja Cements’ (ACEM) Q4CY19 standalone EBITDA was up 36% YoY to Rs5.5bn, better than our/ consensus estimates owing to lower-than-expected cost. Total cost/te declined 1.4% YoY vs our estimate of flat cost YoY on lower fixed cost. Volumes increased 6.7% YoY; while realisation declined 4.4% QoQ - both broadly in-line with our estimates. Standalone net cash increased Rs14bn YoY to Rs47bn as of Dec’19 end. 3.1mnte clinker expansion project at Rajasthan is on track to be operational by Dec’20, as per the management. Factoring in lower realisation, we cut our CY20-21E EBITDA by 3-4%% and reduce our target multiple to 10xEV/E (from 11x) on lower profitability / growth. Accordingly, we reduce our target price to Rs235/share (earlier: Rs237/share) based on 10x Sep’21E EV/E (half-yearly rollover). Maintain ADD.
* Standalone revenue increased 10% YoY to Rs30.4bn, in-line with estimates. Cement volumes increased 6.7% YoY to 6.54mnte (implies ~93% clinker-backed utilisation), while realisation declined 4.4% QoQ/ increased 3% YoY to Rs4,645/te - both broadly in-line with estimates. Premium product volumes grew 14% YoY and 13% YoY in Q4CY19 and CY19, respectively.
* Standalone EBITDA/te increased 27% YoY to Rs837/te (I-Sec: Rs782/te). Total cost/te declined 1.4% YoY / 5% QoQ to Rs3,958/te (I-Sec: Rs4,004/te). Raw material plus power & fuel cost/te increased 3.4% YoY / 1% QoQ. Freight cost/te declined 7% YoY led by network optimisation and logistic efficiencies. Other expenses/te declined 4% YoY on operational efficiencies.
* Adjusted PAT grew 64% YoY to Rs3.5bn (I-Sec: Rs2,9bn). Reported PAT stood at Rs4.5bn which includes deferred tax credit of Rs1bn on adoption of lower tax rate @25.2% effective from Apr’19. Consolidated revenue/ EBITDA increased by 6%/ 23% YoY to Rs70bn/ Rs11bn, respectively, while PAT stood at Rs4.9bn.
* CY19 standalone EBITDA increased 14% YoY to Rs21.5bn: Cement volumes declined 1% YoY to 24.1mnte with realisation increasing 4.3% YoY to Rs4,719/te. Total cost/te increased 1.4% YoY. Accordingly, EBITDA/te increased 15% YoY to Rs893/te. Net cash increased Rs14bn YoY in CY19 to Rs47bn (12% of market cap) as the company generated strong OCF of Rs28bn aided by Rs4bn working capital release. Capex was Rs11bn and dividend payment was Rs3.3bn for CY19.
* Expansion project progressing well and on track: ACEM plans to add 3.1mnte greenfield clinkerisation plant at Marwar Mundwa in Rajasthan, cement grinding capacity of 1.8mnte and 15MW WHRS at a total capex of Rs23.5bn by Dec’20.
* Management rejig: Mr. Bimlendra Jha (MD & CEO) has resigned to pursue other interests and the Board has appointed Mr. Neeraj Akhoury as the new MD & CEO of ACEM. In replacement of Mr. Neeraj, ACC has appointed Mr. Sridhar Balakrishnan (Chief Commercial Officer) as new MD & CEO.
* We factor-in 5.5% volume and 2.3% realisation CAGRs over CY19-CY21E and expect EBITDA/te to increase to Rs933/te by CY21E from Rs893/te in CY19.
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