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Focused efforts towards efficiencies to bridge valuation gap with leaders  

Result Synopsis

Ambuja Cements (ACEM) reported a volume & NSR growth of 8% & 3% y/y translates in revenue growth of 11% y/y to Rs41.3bn (v/s YSECe of Rs40.8bn). EBITDA came in at Rs6.3bn up by 10% y/y with EBITDA Rs813/te (17% above YSECe) aided by muted cost/te up by 2% y/y (7% lower than YSECe). Reported PAT came in at Rs3.7bn (v/s Rs2.7bn YSECe) up by 47% y/y owing to substantial increase in other income to Rs890mn over dividend income from ACC. In recent years, ACEM narrowed the efficiency gap with its peers by adopting cost?effective measures optimization of lead distance under MSA and optimizing fixed costs & specific energy consumption under ‘Parvat’. Furthermore, the efficiencies are expected to improve under the new management with fresh investments of ~Rs100bn in; 1) augmenting WHRS & RE capacities 2) Ramp up AFR usage 3) Installing Fly ash dryers & other debottlenecking measures to improve kiln efficiencies 4) Higher Trade & blending ratio (80 & 85% currently). Management guided that the ongoing expansion & cost efficiency measures to get completed in next 12?18months, totaling the overall capacity close to ~40MTPA including 1.5MTPA at Ropar by CY23E end and CAPEX of Rs35bn ($66/te) for 7MTPA expansion in the east. ACEM is a net cash company holding a significant cash balance of Rs94.54bn as of Dec’22. Further, the promoter group committed Rs200bn towards subscribing share warrants, out of which Rs50bn (25%) has already received (remaining 75% will be subscribed in next 18month from date of issuance). We value ACEM on SOTP based valuation with a standalone entity valued at 14x EV/EBITDA and ACEM’s stake in ACC at 10x EV/EBITDA on FY25E by adding Rs55bn net cash. Thus, we arrived at TP of Rs434 with an ADD rating

Result Highlights

* Volume came +5% higher YSECe, increased by 8% y/y and 14% q/q to 7.7MT.   While NSR increased by 3% y/y but declined by 2% q/q resulted in revenue of Rs41.3bn (v/s Rs40.8bn YSECe) up by 11% y/y and 13% q/q.

*Total cost/te came 7% below YSECe, up by +3% y/y but declined by 9% q/q (due to power & other cost/te moderation by 25/28% q/q), resulted in EBITDA of Rs813/te (v/s YSECe of Rs698/te) up by 3% y/y and 80% q/q.

*EBITDA of Rs6.3bn (+22% above YSECe) increased by +10% y/y and +106% q/q with EBITDA margins of 15.2% (flat y/y) in Q4CY22 v/s 10.3% in Q3CY22.

*Other income increased substantially to Rs890mn (+167% y/y and +89% q/q) as dividend received from ACC resulted in reported PAT of Rs3.7bn (Rs2.7bn YSECe) up by 47% y/y and 167% q/q

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