Ambuja Cements Ltd
(BSE Code: 500425) (CMP: Rs.282.25) (FV: Rs.2) (TGT: Rs.345+)
Ambuja Cements Ltd (ACL) is a holding company engaged in the manufacture of clinkers, cement and related products. It offers a range of products to the business to business (B2B) and retail markets. Its product, Ambuja plus Roof Special, is suited for constructing roofs and slabs. It also offers to install rooftop rainwater harvesting technology. Its products also include Ambuja Powercem, which caters the ready-mix (RMX) sector; Ambuja Railcem, which is designed for railways; and Ambuja Buildcem, which serves the requirements of the mass housing segment. It also co-owns two brands in the micro materials category – i) Alccofine, which includes a range of micro slag materials; and ii) Dirk Pozzocrete, which includes superfine fly ash. Alccofine Micro Materials are used in construction projects such as metro rail, dams, roads, flyovers, bridges and tunnels.
ACL’s EBITDA grew 15% YoY to Rs.3.54 bn translating into a margin of 15.3% (-7.5 pp QoQ, flat YoY). EBITDA/tonne rose 5% YoY to Rs.706, but fell by Rs.367 QoQ due to a 43% QoQ rise in raw material cost/tonne due to higher prices of flyash and the kiln shutdown of the Bhattapara unit. Power and fuel cost/tonne rose 4% QoQ due to higher prices of petcoke and fuel. Other expenses declined 6% YoY due to the reversal of DMF charges of Rs.446 mn in the quarter. PAT grew 10% YoY to Rs.2.7 bn.
ACL plans to add 1.7 MMT of clinker capacity by end CY19. The associated grinding capacity is likely to be added beyond CY20, which will keep its volume growth under check in the medium-term. Volumes grew 10% YoY to 5.02 MMT led by a favorable base. Q3CY17 standalone revenue of Rs.23.2 bn (+15% YoY) marginally exceeded our estimate of Rs.22.9 bn, led by realizations of Rs.4621, which were up 5% YoY, but lower by 2% QoQ on weak pricing in the northern markets. Also, realizations were lower upto Rs.75/tonne in Q3CY17, as VAT incentive of Rs.380 mn was not recognized. ACL’s RoE/RoCE profile is likely to remain subdued at sub 10% even after factoring in the benefits from an improvement in industry pricing. We expect ACL to lose market share due to capacity constraints over the next 2-3 years as peers like Ultratech and Shree Cement are adding capacity by over 25% by way of organic growth or acquisitions.
Technical Outlook: The ACL stock looks very good on the daily chart for medium-term investment. The stock is moving in the trading range of Rs.260-290. A close above Rs.300 with volumes will lead the rally to Rs.350 on the daily chart. The stock trades above all important DMA levels on the daily chart.
Start accumulating at this level of Rs.282.25 and on dips to Rs.262 for medium-to-long-term investment and a possible price target of Rs.345+ in the next 12 months.