Am­buja Ce­ments (Buy)

The Hindu Business Line - - MARKET RADAR -

CMP: ₹212.95

Tar­get: ₹250

In­dia’s ce­ment sec­tor is favourably placed to ben­e­fit from the mul­ti­ple tail­winds: ris­ing de­mand (14 per cent y-o-y in FY19), im­prov­ing util­i­sa­tions and sub­sid­ing cost in­fla­tion. Ad­di­tion­ally, we fore­cast lower-than-ex­pected sup­ply to come through on ac­count of volatile earn­ings, stretched bal­ance sheets of cer­tain play­ers and higher costs of fund­ing. As a re­sult, we be­lieve 45 per cent of the FY19-21 pipe­line ca­pac­ity (30-35 mtpa) will be de­layed, fur­ther im­prov­ing the de­mand-sup­ply dy­nam­ics. Costs would be a key tail­wind for the sec­tor as prices of coal/pet­coke/diesel have de­clined 15 per cent/7 per cent/7 per cent. Fur­ther, with re­lax­ation of axle load norms, freight costs are ex­pected to de­cline 2-4 per cent.

We es­ti­mate a cu­mu­la­tive ben­e­fit of ₹120-150/t to ac­crue to com­pa­nies from 4Q (15-20 per cent of sec­tor EBITDA/t).

We prefer select mid-caps over large caps as sec­tor earn­ings is ex­pected to sta­bilise and mid-caps have sig­nif­i­cantly un­der­per­formed large-caps (26 per cent — six months).

While we are build­ing in ₹100-150/t EBITDA per tonne im­prove­ment over FY19-21, an in­crease in prices on the back of higher util­i­sa­tion would lead to an earn­ings up­grade in the sec­tor. We up­grade Am­buja to ‘buy’ as Hol­cimLa­farge’s an­nounce­ment of 8.5 mtpa ex­pan­sion in In­dia ad­dresses con­cerns on the com­pany’s growth pro­file.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.