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Hold Ambuja Cements, target Rs 210: Prabhudas Lilladher

Hold Ambuja Cements at a price target of Rs 210.|
Oct 25, 2018, 09.01 AM IST
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Ambuja Cements
The current market price of Ambuja Cements is Rs 196.60.
Prabhudas Lilladher has a hold call on Ambuja Cements with a target price of Rs 210.

The current market price of Ambuja Cements is Rs 196.60.

Time period given by the brokerage is one year when Ambuja Cements price can reach the defined target.

View of the brokerage on the company:
Ambuja Cements (ACEM) reported disappointing set of Q3CY18 earnings due to steeper than expected increase in costs. In our Q2CY18 post earnings note, we had highlighted that surprise beat in Q2 was led by unsustainable lower reported costs primarily the other expenses. Hence, we kept out estimates unchanged post Q2 earnings factoring weak margins in H2. However, Q3 margins fell steeper than our expectation. Investors argue that earnings would revive for the sector as the costs/prices have peaked-out/bottomed-out. However, we believe that pricing power is still couple of years away due to deep-rooted impact of demonetization and GST on private spending (having the pricing power). However, strong Govt spending helped to make-up for weak trade volume but at the cost of significantly lower margins. Even if costs come down, it would be passed on to customers due to rising share of non-trade demand. Cement producers have been blaming Ultratech (UTCEM) for lower prices to support high utilization at acquired units of JPA. On the contrary, we believe that weak quality of demand is not allowing UTCEM to increase prices despite sharp surge in costs. Given the weak outlook on prices, we cut our earnings estimates for by 9% for CY19e. With deteriorating fundamentals, we de-rate EV/EBITDA from 13x to 12x CY19e and downgrade our recommendation to HOLD with a target price at Rs 210 (earlier Rs 251).

Higher than expected costs led the miss in earnings: Volume rose 9 per cent YoY to 5.5mn tonnes (t), in line with our estimate. Realisations rose marginally 0.6 per cent/Rs 28 QoQ (+1.2 per cent/Rs53 YoY) to Rs 4,594 (PLe:Rs4,588)/t. Impacted by 4 per cent/9 per cent YoY increase in Energy/Freight cost and higher packing and maintenance costs, Cost/t rose 2.8 per cent/Rs113 YoY at Rs4,109 above our estimate of Rs3,911. Marred by higher costs, EBITDA/t missed our estimates by wide margin by 28 per cent at Rs485 (PLe:Rs677), down 11 per cent YoY. Hence, EBITDA fell 3 per cent YoY to Rs2.66bn (PLe:Rs3.65bn). Led by 27 per cent YoY fall in other income (on account of absence of dividend from ACC) , Adj. PAT fell 25 per cent YoY to Rs1.79bn (PLe:2.5bn).

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Disclaimer: This recommendation is analyst's own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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