Maintain BUY on Ambuja Cements - Cost control boost margins! - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities and Mr. Saurabh Dugar, Institutional Research Analyst, HDFC Securities

During 1QCY21, ACEM exhibited healthy realisations and strong cost control thereby bolstering margins. Thus, standalone net sales/EBITDA/APAT rose 3/27/34% QoQ (28/62/67% YoY) to INR 36.2/9.8/6.6 bn respectively. Over the next two years, ACEM's volume growth and thus profitability will benefit from its Marwar Mundwa project expansion comprising of greenfield integrated plant with 3mnMT clinkerisation and 1.8mnMT cement grinding and low-cost WHRS and solar power expansions in several locations. We maintain BUY with unchanged SOTP-based target price of INR 358/share.

1QCY21 key highlights: ACEM's sales volumes rose 26/3% YoY/QoQ to 7.24mnMT, on strong demand. Utilisation increased to 98% (vs 95/78% QoQ/YoY). NSR remained flat QoQ (+2% YoY) on account of price recovery since mid-Feb'21. Share of premium cement increased to ~12% of total sales vs ~8% YoY. On the cost front, raw material cost and fixed cost controls led unitary opex decline by 6/5% QoQ/YoY, bolstering unitary EBITDA to INR~1,350/MT (+24/29% QoQ/YoY). While the raw material cost reduced on account of better mix, power and fuel charges increased due to rising cost of key inputs - petcoke and coal. Despite higher diesel prices, freight cost declined due to gains from MSA and continuous improvement in logistics efficiencies such as direct dispatches, reduction in lead and increased home market sales. Other expenses declined due to continuous focus on fixed cost optimisation and operating leverage.

Outlook: ACEM will commission its Marwar Mundwa project expansion by 3QCY21 comprising of greenfield integrated plant with 3mnMT clinkerisation and 1.8mnMT cement grinding. This will boost growth CY21 onwards. Thereafter, it will also explore expansion at other locations. It is also adding 54MW WHRS in several locations by early CY22, thus accounting for ~20% of its electricity requirements. These initiatives will boost volume growth and improve its profitability, in our view. We maintain our estimates and BUY rating on the stock with an unchanged TP of INR 358 (SOTP based- standalone business at 14x Mar'22E EBITDA and 50.05% holding in ACC at a 20% discount to our target market capitalisation).

Shares of AMBUJA CEMENTS LTD. was last trading in BSE at Rs.309 as compared to the previous close of Rs. 314. The total number of shares traded during the day was 673516 in over 9208 trades.

The stock hit an intraday high of Rs. 319.85 and intraday low of 306.85. The net turnover during the day was Rs. 209992423.

Source : Equity Bulls

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