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Ambuja Cements 4QCY2011 performance highlights and results update

Contributed by Angel Broking

For 4QCY2011, Ambuja Cements (ACEM) reported 17.2% growth in its bottom line, which was higher than our estimates. Better-than-expected performance was on account of higher volumes. The company’s realization also improved by 17.5% yoy and 11.8% qoq. However, the company faced substantial margin pressure due to higher freight expenses and other costs, which negated the improvement in realization, resulting in a marginal 63bp decline in OPM to 19.1%. We maintain our Neutral view on the stock.

OPM at 19.1%, down 63bp yoy: During 4QCY2011, ACEM’s net sales increased by 30.2% yoy to Rs.2,329cr due to higher realization and growth in dispatches. Realization for the quarter improved by 17.5% yoy to Rs.4,197/tonne and volumes grew by 10.8% yoy to 5.55mn tonnes. However, margins were under pressure because of surge in freight expenses and other costs, which negated the strong growth in realization. OPM for the quarter stood at 19.1%, down 63bp yoy. However, reported net profit was affected by Rs.33cr on account of an exceptional item relating to change in accounting method for stock options.

Outlook and valuation: We expect ACEM to register 13.7% and 13.5% yoy growth in its top line and bottom line, respectively, in CY2012E, aided by 9.9% growth in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$184 on current capacity (US$182 on CY2012E capacity), which we believe factors in positives such as favorable locational presence. Hence, we continue to remain Neutral on the stock.