Buy Ambuja Cements Ltd For Target Rs.475 - ICICI Direct
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New capacity to accelerate growth from Q4CY21…
About the stock: Ambuja Cement (a Holcim group company) is a large cement player with capacity of over 29.7 MT spread across North-Central (40%), West (~35%) and East (~25%) in India. It has a large marketing set-up, pan-India presence and strong operational linkages with ACC.
* The upcoming new capacity at Rajasthan will enhance its cement capacity by 1.8 MT to 31.5 MT and clinker capacity by 3.0 MT
* In the long run, the company plans to reach over ~50 MT capacity through significant de-bottlenecking and setting-up of satellite grinding units
Q3CY21 Results: Ambuja Cements’ Q3CY21 results stayed in line with estimates.
* Revenues were up 13.5% YoY to | 3237 crore. Sales volumes & realisations were up 9.3% YoY and 3.8% YoY, respectively. On QoQ basis, revenues were down 3.4%
* Reported EBITDA of | 703.1 crore (up 3.3% YoY) remained in line with our estimates despite a bit lower-than-expected margins
* Net profit remained flat YoY to | 441.2 crore due to lower other income
What should investors do? Strong brand with pan India presence, cost efficient and robust balance sheet are the key positives.
* With new capacities coming on stream from Q3CY21, we expect healthy double digit growth during CY20-22E. Hence, we maintain BUY rating
Target Price and Valuation: We value Ambuja at | 475 i.e.17x CY22E EV/EBITDA
Key triggers for future price performance:
* New clinker capacity at Marwar Mundwa, Rajasthan (1.8 MT cement, 3 MT clinker) to generate incremental sales of ~5 MT per annum from Q3CY21
* With ambition to reach 50 MT capacity, the company has further embarked upon new brownfield expansion of 1.5 MT cement grinding unit in Punjab
* Strong b/s and efficient cement player in the industry
Alternate Stock Idea: Apart from Ambuja, in our cement sector coverage we also like UltraTech Cement.
* It is a market leader with strong brand in the retail segment. It has a robust balance sheet and aims to become debt free by FY23E
* BUY with a target price of ₹ 8,700/share
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