Buy Ambuja Cements, target Rs 285: Reliance Securities
Buy Ambuja Cements Ltd. at a price target of Rs 285.
Ambuja Cements Ltd., incorporated in 1981, is a large-cap company with a market cap of Rs 43763.62 crore.
Investment rationale by Reliance Securities
Reported operating performance of Ambuja Cements (ACL) has slipped our estimate albeit marginally 1QCY18 led by higher-than-expected operational cost. EBITDA stood at Rs4.1bn (+12% YoY and -7% QoQ) vs. our estimate of Rs4.3bn. Operating cost/tonne surged by 5% YoY and 2% QoQ to Rs3,783 mainly led by spike in input cost (due to higher fly-ash and gypsum prices), higher freight cost (led by increase in lead distance, FOR sales and diesel prices) and power & fuel cost (owing to higher petcoke prices). EBITDA/tonne stood at Rs655 vs. Rs606 and Rs750 in 1QCY17 and 4QCY17, respectively. EBITDA margin rose by 34bps YoY (-210bps QoQ) to 14.7%. Notably, average cement realisation came in marginally above our estimates at Rs4,438/tonne mainly aided by increasing contribution from premium products. Further, we believe that clarity on royalty payment to Holcim by maintaining 1% of net sales bodes well for the stock, as there were apprehensions among the investors about the possible increase in royalty charges. Though we tone down our EBITDA estimate by 5% and 8% for CY18E and CY19E, respectively mainly to factor in higher operational cost and target multiple from 13x to 12.5x on capacity constraints, we maintain our BUY recommendation on the stock with a revised Target Price of Rs285 (from Rs310 earlier).