1. 2QCY2010 Result Update | Cement
July 23 2010
Ambuja Cements NEUTRAL
CMP Rs115
Performance Highlights Target Price -
Y/E Dec (Rs cr) 2QCY2010 1QCY2010 % chg qoq 2QCY2009 % chg yoy Investment Period -
Net Sales 2,048 1,990 2.9 1,847 10.8
Operating Profit 644 599 7.6 521 23.7 Stock Info
OPM (%) 30.8 29.7 118bp 27.6 326bp Sector Cement
Net Profit 391 462 (15.4) 325 20.5 Market Cap (Rs cr) 17,522
Source: Company, Angel Research Beta 0.7
52 Week High / Low 126/82
For 2QCY2010, Ambuja Cement (Ambuja) reported a 20.5% yoy growth in net
Avg. Daily Volume 606618
profit due to the substantial increase in despatches. We expect the company to
report healthy yoy growth in despatches over the next few quarters as well due to Face Value (Rs) 2
the new capacity additions. Commencement of the new clinker units is expected BSE Sensex 18,131
to provide cushion to the company’s operating margins against the decline in Nifty 5,449
cement realisations expected going ahead. At current levels, the stock is fairly
priced owing to which we maintain our Neutral view on the stock. Reuters Code ABUJ.BO
Bloomberg Code ACEM@IN
Operating profit up by 23.7% yoy: Ambuja’s standalone top-line grew 10.8% yoy,
which was in line with our estimates. Top-line growth was primarily driven by the
increase in despatches by 10.8% yoy to 5.4 million tonnes due to capacity
Shareholding Pattern (%)
additions. On the operating front, the company’s OPMs improved by 326bp yoy
to 30.8%, primarily due to the substantial reduction in clinker purchase following Promoters 46.4
commissioning of the new clinker units. Bottom-line grew 20.5% yoy to Rs391cr in MF / Banks / Indian Fls 17.4
line with our estimates. FII / NRIs / OCBs 27.6
Outlook and Valuation: We expect Ambuja to register 6.8% CAGR in top-line over Indian Public / Others 8.6
CY2009-11E with dispatches expected to record 10.5% CAGR over the mentioned
period on the back of capacity addition. On the valuation front, at current levels
the stock is trading at EV/EBITDA of 8.3x and EV/tonne of US $136/tonne on Abs. (%) 3m 1yr 3yr
CY2011E estimates. We have valued Ambuja at an average Target EV/EBITDA of
Sensex 2.5 19.0 15.2
8x and EV/tonne of US $115/tonne to arrive at a revised fair value of Rs114
(Rs119 earlier). We maintain our Neutral view on the stock. Ambuja (4.3) 18.5 (15.0)
Key Financials
Y/E Dec.( Rs cr) CY2008 CY2009 CY2010E CY2011E
Net Sales 6,168 7,041 7,277 8,033
% chg 9.5 14.2 3.4 10.4
Net Profit 1,402 1,218 1,079 1,243
% chg (20.7) (13.1) (11.4) 15.2
OPM(%) 27.7 26.5 24.5 25.4
FDEPS(Rs) 9.2 8.0 7.1 8.2
P/E(x) 12.5 14.4 16.2 14.1
P/BV(x) 3.1 2.7 2.5 2.2
RoE(%) 27.1 20.1 16.0 16.6 Rupesh Sankhe
RoCE(%) 24.5 18.4 18.8 19.5 022-40403800 Ext 319
EV/Sales 2.7 2.4 2.4 2.1 rupeshd.sankhe@angeltrade.com
EV/tonne 189 161 140 136
V Srinivasan
Installed Capacity (mtpa) 20 23 27 27
022-40403800 Ext 330
EV/EBITDA 9.9 9.0 9.8 8.3 v.srinivasan@angeltrade.com
Source: Company, Angel research
Please refer to important disclosures at the end of this report 1
3. Ambuja Cements | 2QCY2010 Result Update
Exhibit 2: Financial performance
2,500 35
2,000
30
1,500
(Rs cr)
(%)
25
1,000
20
500
0 15
1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10
Net Sales Net Profit OPM
Source: Company, Angel Research
Exhibit 3: Actual v/s Angel Estimates
Actual Estimates Variation (%)
Net Sales 2,048 2,055 (0.4)
Operating Profit 644 602 7.1
Net Profit 391 392 (0.3)
Source: Company, Angel Research
Operational highlights
For 2QCY2010, the company’s realisation per tonne remained flat on a yoy basis
at Rs3,834. However, on a positive note, the raw material cost per tonne declined
following reduced external clinker purchase, which stood at Rs23cr during the
quarter as against Rs200cr in 2QCY2009. Further, during the quarter, the
company reported an increase of Rs62.3cr in the stock in trade, which pushed
down the overall raw material costs. However, the freight costs per tonne rose by
22.6% yoy due the increase in diesel costs. Depreciation cost too moved up by
28.2% yoy following increase in capacity. Operating profit per tonne stood at
Rs1,206, up 11.6% yoy. Net profit per tonne for the quarter stood at Rs733, up
8.8% yoy.
Exhibit 4: Per tonne analysis
% chg % chg
2QCY10 1QCY10 2QCY09
(yoy) (qoq)
Realisation/tonne 3,834 3,776 3,830 0.1 1.5
Power & Fuel Cost /tonne 849 674 778 9.1 26.0
Freight & Forwarding Cost/tonne 838 782 683 22.6 7.1
Operating Profit/tonne 1,206 1,136 1,080 11.6 6.2
Depreciation/tonne 187 146 146 28.2 28.7
Net Profit/tonne 733 877 674 8.8 (16.5)
Source: Company, Angel Research
July 23 2010 3
4. Ambuja Cements | 2QCY2010 Result Update
Investment Arguments
Capacity addition to maintain robust volume growth
During 1QCY2010, the company expanded its clinker capacity by 4.4mtpa by
setting up clinker plants with a capacity of 2.2mtpa each at Bhatapara and Rauri.
The company had also commissioned grinding units at Nalagarh and Dadri (with
capacities of 1.5mn tonnes each) in 1QCY2010. The company will also be adding
2mtpa of total grinding capacity at Bhatapara and Maratha. The company is
expected to have overall capacity of 27mn tonnes by the end of CY2010 post its
proposed capacity additions.
Exhibit 5: Installed capacity
30
27 27
25 24
22
20 19
(mtpa)
15
10
5
0
CY2007 CY2008 CY2009 CY2010E CY2011E
Source: Company, Angel Research
Presence in high-growth regions to ensure better realisations
Ambuja currently derives close to 80% of its revenues from the western and
northern region with both the regions having an almost equal share. The
company derives the remaining 20% from the eastern region. Thus, we expect
the company to enjoy better realisations as compared to the players with
significant exposure to the south due to the presence in the high-growth
northern and eastern regions.
Setting up of new capacities to improve margins substantially from CY2010:
We expect Ambuja to enjoy significant margin expansion due to the
commissioning of new clinker capacities to the tune of 4.4mtpa as the
company would enjoy substantial cost reduction through internal manufacture
of clinker as against external purchase. During CY2009, the company had a
negative impact of up to 400bp on its OPMs due to purchase of close to
1.7mn tonnes of high-cost clinker. The company is also expected to record
savings in energy cost with the commissioning of new captive power
capacities. The company, which commissioned a 33MW captive power at
Bhatapara (33MW), has set up another 30MW power plant at Ambuja Nagar,
which would take its overall captive power capacity beyond 400MW.
July 23 2010 4
5. Ambuja Cements | 2QCY2010 Result Update
Outlook and Valuation
We expect Ambuja to register 6.8% CAGR in top-line over CY2009-11E with
despatches expected to record 10.5% CAGR over the mentioned period on the
back of capacity addition. On the valuation front, at current levels the stock is
trading at EV/EBITDA of 8.3x and EV/tonne of US $136/tonne on CY2011E
estimates. We have valued Ambuja at an average Target EV/EBITDA of 8x and
EV/tonne of US $115/tonne to arrive at a revised fair value of Rs114 (Rs119
earlier). We maintain our Neutral view on the stock.
Exhibit 6: Target Valuation on CY2011E basis
Target EV/EBITDA 8 Target EV/Tonne (US $) 115
EV (Rs cr) 16,340 EV (Rs cr) 15,369
CPP*(443 MW) 1,772
Market Cap (Rs cr) 17,561 Market Cap (Rs cr) 17,201
No of shares (cr) 152 No of shares (cr) 152
Fair Price (Rs) 115 Fair Price (Rs) 113
Source: Angel Research; Note:*Captive power plant
Exhibit 7: Change in Estimates
CY10E CY11E
Earlier Revised Variation Earlier Revised Variation
Net Sales 7,263 7,277 0.2 8,033 8,033 0.0
Operating Exp 5,484 5,494 0.2 6,091 5,991 (1.6)
Operating Profit 1,779 1,783 0.2 1,942 2,042 5.1
Depreciation 342 388 13.5 374 443 18.4
Interest 15 15 0.0 19 19 0.0
PBT 1,641 1,599 (2.6) 1,810 1,842 1.8
Tax 533 520 (2.4) 588 599 1.9
PAT 1,107 1,079 (2.5) 1,222 1,243 1.7
Source: Angel Research
July 23 2010 5
12. Ambuja Cements | 2QCY2010 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Ambuja Cements
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
July 23 2010 12
