Ambuja Cements Ltd, a part of Holcim, is an India-based cement manufacturing company. Holcim is a supplier of cement and aggregates (crushed stone, gravel and sand). Its activities include the manufacture and distribution of cement, and the production, processing and distribution of aggregates, ready-mix concrete and asphalt. It also offers consulting, research, trading, engineering and other services.
For 2QCY2015, Ambuja Cements (ACEM) reported an in-line set of numbers on the operational front. It reported a 0.5% yoy growth in cement volume to 5.88mt as against our estimate of 5.7mt (3.4% yoy de-growth). The realization/tonne declined by 8.4% yoy to Rs4,239 as against our estimate of Rs4,302. The EBITDA fell by 34.7% yoy to Rs383.8cr, but beat our estimate of Rs367.6cr. The EBITDA/tonne at Rs653, down by 35% on a yoy basis, was in line with our estimate of Rs650. OPM down 632bp yoy: For 2QCY2015 ACEM’s operating performance was in line with our estimates. Its standalone top-line fell by 7.9% yoy to Rs2,492.8cr, impacted by a steep fall in realization. Realization was down by a steep 8.4% yoy. The company’s volume rose by 0.5% yoy to 5.88mn tonne. The OPM fell by 632bp yoy to 15.4%, impacted by a fall in realization and increase in freight costs and employee expenses. The Reported PAT fell by 44.6% yoy to Rs226.4cr, and was in line with our estimate. Outlook and valuation: We expect ACEM’s top-line growth to remain under pressure due to pricing pressure in its key regions of North and West. We expect ACEM to register a 10.2% CAGR in top-line over CY2014-16E. The bottom-line is expected to grow at a slower pace, ie at a CAGR of 5.4%, for the same period due to high cost pressures and poor pricing scenario. At the current market price, the stock is trading at an EV/tonne of US$170 on CY2016E capacity, which we believe is fairly valued. We maintain our Neutral rating on the stock with a fair price of Rs233 on 12x EV/EBIDTA and EV/tonne of US$170 on CY2016E installed capacity.