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Ambuja Cements - Market share sustenance key for rerating - ICICI Securities

Posted On: 2021-02-22 05:00:51 (Time Zone: Arizona, USA)

We hosted Neeraj Akhoury, CEO India, LafargeHolcim and MD&CEO of Ambuja Cement (ACEM), and Rajani Kesari, CFO LafargeHolcim India and CFO of ACEM, on the company's first ever earnings call. Key takeaways include: a) management expects industry to post robust 15-17% YoY demand growth in CY21, aided inter alia by low base; b) India has been a 'growth' market for LafargeHolcim group, hence it would continue to invest in India; c) achieved sustainable cost savings of ~Rs200/te via cost rationalisation and in-house efficiency program I Can; share of green power to increase to 38% by Dec'22 from the current 5%; and d) achieved synergies worth Rs2.5bn (>5% of PBT) in CY20 via MSA with ACC (this is likely to increase with incremental volumes and synergies). We maintain our standalone CY21E-22E EBITDA and raise our TP to Rs330 (from Rs300) based on 10x FY23E EV/E on half-yearly rollover. Maintain BUY. Key risks: lower demand / prices.

- Q4CY20 standalone EBITDA at Rs7.7bn (up 40% YoY) was higher than our estimates led by better than realisation, which remained broadly flat QoQ (up 6% YoY) vs our estimate of 2% QoQ decline. Accordingly, EBITDA/te increased 30% YoY to Rs1,089/te (I-Sec: Rs1,010/te). Total cost/te declined 1.5% YoY owing to various operational efficiencies, although it grew 1.7% QoQ due to higher fuel / diesel costs. Variable cost/te was flat YoY with other expenses/te down 8% YoY. On a QoQ basis, variable cost/te grew by Rs95 owing to higher fuel / diesel costs, while other expenses/te was flat despite higher volumes. PAT grew 41% YoY to Rs5bn.

- Standalone revenues rose 14% YoY to Rs34.7bn (I-Sec: Rs33.8bn). Realisation increased 6% YoY (declined only 0.5% QoQ) to Rs4,919/te led by higher prices in North and West regions. Special products grew 16% YoY in CY20 and their share increased to 12% of trade sales in Q4CY20. Volumes increased 8% YoY to highest-ever 7.05mnte (implying >90% utilisation) led by strong growth in East and North regions. Management expects increased government thrust on infrastructure, strong rural housing demand and improving industrial / commercial capex to drive robust 15-17% YoY industry growth in CY21, also aided by low base.

- India has been a 'growth' market for LafargeHolcim group, hence it would continue to invest in the country. Over 10mnte capacities would be commissioned over next 2-3 years between ACC and ACEM. Besides, ACEM is exploring expansions at Bhatapara in East and Maratha in West. Overall, the group expects to sustain its volume market share in India after losing some in the past decade.

- 3mnte clinkerisation at Marwar Mundwa, Rajasthan, along with 1.8mnte grinding unit is expected to be commissioned by Jun'21. This will not only strengthen the company's market share in North and Gujarat, but also improve overall profitability as the profitability of this plant is expected to be better than the company average.

- Achieved sustainable cost savings of ~Rs200/te via cost rationalisation and in-house efficiency program I Can. While some of these savings would be negated by recent input cost escalations and normalisation of fixed-costs, management expects to sustain these benefits via increased cost efficiency measures such as improving blending ratio, higher direct despatches, source mix optimisation, increasing share of AFR, WHRS and solar, etc. The share of green power is expected to increase to 38% by Dec'22 from the current 5%. ACEM plans to increase WHRS capacity from the current 6MW to 60MW by Dec'21 and further to 90MW by Dec'22. Similarly, share of solar power is expected to increase to 15% by CY22E from the current 2%.

- Achieved synergies worth Rs2.5bn (>5% of PBT) in CY20 via MSA with ACC; this is likely to increase with incremental volumes and synergies. Cement / clinker swaps with ACC gained traction with volumes and synergies likely more than doubling YoY in CY20. Besides, network optimisation and better realisation with change in market mix will also add to improved profitability. Accordingly, MSA with ACC has been renewed for next three years with the same earlier conditions.

- ACEM generated FCF of Rs19bn after incurring capex of Rs10bn in CY20. Net cash declined to Rs29bn from Rs47bn in CY19 after paying dividends of Rs37bn (Rs17/share). The same is likely to be further increased to Rs53bn by CY22 even after factoring-in capex of Rs25bn over CY21E-CY22E. Similarly, ACC's net cash is likely to increase from the current Rs59bn to Rs76bn by CY22E after factoring-in capex of Rs32bn over CY21E-CY22E.

- Standalone EBITDA/te grew 30% YoY to Rs1,168/te in CY20 despite other operating income/te declining by Rs45/te owing to expiry of government incentives. Volumes fell 6% YoY to 22.7mnte while EBITDA grew 23% YoY to Rs26.5bn led by 4.5% YoY increase in realisation. North plus Gujarat constituted 57% of CY20 revenues while Maharashtra and East constituted 21% and 22% of CY20 revenues respectively. Trade sales accounted for ~80% of overall sales.

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.266.65 as compared to the previous close of Rs. 275.25. The total number of shares traded during the day was 219492 in over 2580 trades.

The stock hit an intraday high of Rs. 277 and intraday low of 265.35. The net turnover during the day was Rs. 59279941.

Source: Equity Bulls

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