Am­buja Ce­ments Ltd

Money Times - - Stock Watch -

(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.

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