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Market share sustenance key for rerating

We hosted Neeraj Akhoury, CEO India, LafargeHolcim and MD&CEO of Ambuja Cement (ACEM), and Rajani Kesari, CFO LafargeHolcim India and CFO of ACEM, on the company’s first ever earnings call. Key takeaways include: a) management expects industry to post robust 15-17% YoY demand growth in CY21, aided inter alia by low base; b) India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in India; c) achieved sustainable cost savings of ~Rs200/te via cost rationalisation and in-house efficiency program I Can; share of green power to increase to 38% by Dec’22 from the current 5%; and d) achieved synergies worth Rs2.5bn (>5% of PBT) in CY20 via MSA with ACC (this is likely to increase with incremental volumes and synergies). We maintain our standalone CY21E-22E EBITDA and raise our TP to Rs330 (from Rs300) based on 10x FY23E EV/E on half-yearly rollover. Maintain BUY. Key risks: lower demand / prices.

* Q4CY20 standalone EBITDA at Rs7.7bn (up 40% YoY) was higher than our estimates led by better than realisation, which remained broadly flat QoQ (up 6% YoY) vs our estimate of 2% QoQ decline. Accordingly, EBITDA/te increased 30% YoY to Rs1,089/te (I-Sec: Rs1,010/te). Total cost/te declined 1.5% YoY owing to various operational efficiencies, although it grew 1.7% QoQ due to higher fuel / diesel costs. Variable cost/te was flat YoY with other expenses/te down 8% YoY. On a QoQ basis, variable cost/te grew by Rs95 owing to higher fuel / diesel costs, while other expenses/te was flat despite higher volumes. PAT grew 41% YoY to Rs5bn.

* Standalone revenues rose 14% YoY to Rs34.7bn (I-Sec: Rs33.8bn). Realisation increased 6% YoY (declined only 0.5% QoQ) to Rs4,919/te led by higher prices in North and West regions. Special products grew 16% YoY in CY20 and their share increased to 12% of trade sales in Q4CY20. Volumes increased 8% YoY to highestever 7.05mnte (implying >90% utilisation) led by strong growth in East and North regions. Management expects increased government thrust on infrastructure, strong rural housing demand and improving industrial / commercial capex to drive robust 15-17% YoY industry growth in CY21, also aided by low base.

* India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in the country. Over 10mnte capacities would be commissioned over next 2-3 years between ACC and ACEM. Besides, ACEM is exploring expansions at Bhatapara in East and Maratha in West. Overall, the group expects to sustain its volume market share in India after losing some in the past decade.

* 3mnte clinkerisation at Marwar Mundwa, Rajasthan, along with 1.8mnte grinding unit is expected to be commissioned by Jun’21. This will not only strengthen the company’s market share in North and Gujarat, but also improve overall profitability as the profitability of this plant is expected to be better than the company average.

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