Buy Ambuja Cements Ltd For Target Rs.490 - ICICI Direct
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Beats estimates with strong margins…
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%) 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
Q1FY22 Results: Ambuja Cement reported 149 bps QoQ expansion in margins leading to better profitability despite cost pressure.
* Clocked revenue of | 3,371 crore, down 6.9% QoQ led by sales volumes degrowth of 11.3% to 6.4 MT. On a YoY basis, revenues were up 53.2%
* EBITDA/t was up 10.8% QoQ to | 1,495/t (vs. last quarter EBITDA/t of | 1,349/t). EBITDA margin was at 28.5%, up 149 bps QoQ, 112 bps YoY
* Reported PAT was at | 723.1 crore, up 59.5% YoY, 8.8% QoQ vs. (our estimate: | 542 crore)
What should investors do?
Strong brand with pan India presence, cost efficient and robust balance sheet are 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 | 490 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 robust balance sheet and aims to become debt free by FY23E
* BUY with a target price of | 8,700/share
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