Strong operating show led by cost efficiencies
Ambuja Cements (ACEM) continued to surprise positively with Q1CY21 EBITDA increasing 62% YoY to Rs9.8bn (I-Sec: Rs8bn) led by lower costs. Total cost/te declined 6% QoQ (and 5% YoY) vs our expectations of flat cost/te owing to fuel mix optimisation, better cost efficiencies and operating leverage. Volumes including clinker sales grew 25% YoY (2 year CAGR of 6%) while realisation remained flat QoQ – both broadly in-line with our estimates.
EBITDA/te increased sharply 29% YoY to Rs1,350/te (I-Sec: Rs1,124/te). Factoring in better profitability, we raise our CY21-CY22E EBITDA by 4-8% and EPS by 5-11%. With improving profitability and return ratios, we raise our target multiple for standalone entity to 10yrs historical average of 12x EV/E (earlier 10x) and raise our target price to Rs375/share (earlier: Rs330/sh). Maintain BUY. Key risk: Lower demand/prices.
* Q1CY21 standalone EBITDA at Rs9.8bn (up 62% YoY) was higher than our / consensus estimates. Total cost/te declined 5% YoY and 6% QoQ led by operational efficiencies along with logistic efficiencies such as direct dispatches, reduction in lead distance and increased home market share and operating leverage, which compensated for rising fuel and diesel costs. Raw material and power and fuel costs/te declined 9% QoQ (Rs143/te) mainly due to fuel mix optimisation and stock inventory adjustments. Accordingly, EBITDA/te increased 29% YoY / 24% QoQ to Rs1,349/te. PAT grew 66% YoY to Rs6.6bn.
* Standalone revenue rose 30% YoY to Rs35.8bn (I-Sec: Rs35.7bn). Realisation increased 3.3% YoY (up 0.3% QoQ) to Rs4,945/te supported by 82% YoY growth in special/premium products (contributed 12% of total sales volume in Q1CY21). Volumes increased 25% YoY (2year CAGR of 6%) to highest-ever 7.24mnte (>96% utilisation) supported by volume growth across regions. Management remains cautiously (given the recent resurgence in covid cases) optimistic for CY21 backed by higher government infrastructure spending and rural housing demand.
* Medium-term ambition to increase capacities to 50mnte from the current 29.6mnte. Greenfield project at Marwar Mundwa, Rajasthan, is expected to commence operations in Q3CY21. This project will enhance the clinker capacity by 3mnte and is likely to improve cement sales by 5mnte. The company is also exploring brownfield expansions at Bhatapara, Chhattisgarh and Maratha, Maharashtra.
* Consolidated revenue grew 24% YoY to Rs76.2bn, broadly led by volumes. Consolidated EBITDA grew 54% YoY to Rs18.4bn while PAT, after minority interest, grew 71% YoY to Rs9.5bn. Synergies under the master-supply agreement with ACC also aided profitability for both the companies. ACEM remains focused on sustainability goals and has improved performance across key levers of carbon emissions, water consumption, use of AFR and co-processing of wastes.
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