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Capacity expansion to drive volume growth

Ambuja Cements’ (ACEM) Q3CY21 standalone EBITDA at Rs7bn (up 3.4% YoY) was broadly in line with our and consensus estimates. Volumes growth (including clinker sale) at 9% YoY was higher than our expectation, while EBITDA/te at Rs1,138/te was marginally below our estimate. Total cost/te increased 7% YoY and 9% QoQ mainly owing to higher input costs, which were partially mitigated by logistics and other operational efficiencies. Hence, EBITDA/te declined 5% YoY and 24% QoQ to Rs1,138/te (I-Sec: Rs1,201/te). While investor concern around sharp cost increases seems valid, industry has demonstrated strong pricing resilience in the past. Our recent channel checks suggest companies have increased prices by Rs15-20/bag across regions. We believe ACEM with its large pan-India diversified market presence, premium brand positioning and increased focus on cost efficiencies is better placed to sustain/improve margins in medium term. We maintain BUY with unchanged target price of Rs464/sh based on 13x Sep’23E EV/E. Key risk: Lower demand/prices.

* Q3CY21 standalone EBITDA at Rs7bn (up 3.4% YoY) was broadly in line with our / consensus estimates. Total cost/te increased 9% QoQ and 7% YoY. Raw material plus power and fuel costs rose 12% QoQ and 15% YoY owing to rise in fuel prices and increase in inbound logistics cost which was partly mitigated by efficiency gains. Freight cost/te declined 1.4% YoY (up 5% QoQ) on account of network optimisation and direct dispatches. Other expenses/te increased 10% both YoY and QoQ due to higher packing material cost and marketing spend. EBITDA/te declined 5% YoY / 24% QoQ to Rs1,138/te. PAT remained flat YoY to Rs4.4bn.

* Standalone revenue up 14% YoY to Rs31.9bn (I-Sec: Rs30.5bn). Realisation increased 4.6% YoY (flat QoQ) to Rs5,167/te supported by increased share of value-added products. Volumes including clinker sales increased 9% YoY to 6.2mnte (~83% utilisation) led by strong growth in North and West regions. Management remains confident on domestic demand over the medium term backed by continued government focus on capital expenditure and reforms coupled with revival in agricultural activity.

* ACEM commenced commercial production at its Marwar plant, which enhances its clinker capacity by 3mnte and cement sales potential by 5mnte. It also started production from underground mine (Gare Palma, Coal Block), providing fuel linkage to ACEM’s Bhatapara plant in the East. Also, railway siding has been made operational at Rabriyawas plant.

* Consolidated revenue grew 7.5% YoY to Rs65bn, broadly led by volumes. Consolidated EBITDA rose 5% YoY to Rs14.1bn while PAT, after minority interest, grew 7% YoY to Rs6.6bn.

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