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Muted volume & high cost led weak show

Our view

Historically, Ambuja Cement lagged its peers in term of capacity additions. ACEM capacity grew at 2% CAGR over CY10‐21, while its peers capacity grown at 10‐17% CAGR. This result in lower or a stagnant volume growth as compare to the industry during CY11‐20 result in a loss of market/capacity share.

The management now aims for 50MTPA capacity in the near term, reviving ACEM capacity expansion looking at future robust demand. ACEM newly installed capacity at Marwar, Rajasthan along with the grinding capacity at Ropar, Punjab would lead to incremental capacity growth of 4.5mtpa (15% of current capacity) and improves market presences. The upcoming WHRS capacity to lead the operating efficiency and cost improvement programs the Master Supply Agreement with ACC are yielding results.

Result Highlights

* In seasonally weak quarter ACEM reported 5% sequentially decline in cement volumes to 6MT (YSEC est. 6.7MT), while over a lower base remained up by 9% y/y in Q3CY21. Revenue stood at Rs32.3bn (YSEC est. Rs34.1bn) up by 14% y/y with a sequential decline of 4% q/q led by lower volumes.

* The NSR decline by 2% q/q but remained up by 4% y/y that had cushioned the EBITDA decline to 27% q/q (but grew up by 3% y/y on a weak base) against the muted volume q/q and increase in input/other cost by +53/6% q/q (v/s YSEC EBITDA est. of Rs8.8bn) in Q3CY21.

* This resulted the decline of EBITDA/te by 25% q/q and 5% y/y to Rs1134/te, while margins stood at 21.7% in Q3CY21 v/s 28.5% q/q and 23.9% y/y in Q3CY21.

* PAT de‐grew by 39% q/q led by the fall in EBITDA level but remain buoyant on y/y to Rs4.4bn v/s YSEC est. of Rs5.2bn in Q3CY21.

Valuation

Over a weak base and the upcoming capacity, we expect ACEM volume to rebound strongly by 17/11% y/y in CY21E/22E. ACEM being a net cash entity could fund its future Capex through internal accruals. At CMP, stock is trading at 17/14x of EBITDA on CY21/22E. Thus, we retain our ADD recommendation with a TP of Rs442 (unchanged), valuing the stock at 16x EV/EBITDA on the CY22E estimate.

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