Ambuja Cements Ltd. share price target

Just after a good H1CY16, ACEM disappoints in Q3. However, there is a shift in narratives. For instance, the affordable housing and good monsoons could augur well. And post CCEA approval, higher other income might benefit in reported net profits for the quarters to come by. Yet by all accounts, on standalone, the scope of operational efficiency is clearly limited. For instance, the windfall pet coke gains have come to an end. The focus, thereby, shifts to basics: Volume and price. Unlike the past, now, there are many levers to pull on. And this could spring a surprise. Perhaps. We continue to recommend HOLD. Key Highlights and Investment Rationale...

ICICI Securities Ltd | Retail Equity Research Ambuja Cement's results were broadly above our expectations. Ambuja's Q2CY16 revenues increased 1.9% YoY (up 5.1% QoQ) to | 2,541.2 crore (vs. I-direct estimate of | 2,670.1 crore) led by 4.1% YoY increase in realisation to | 4,412 (due to sharp price recovery in northern region) while volumes declined 2.0% YoY to 5.76 MT EBITDA/tonne increased 62.1% YoY to | 1,009/tonne (vs. I-direct estimate of | 791/tonne) led by 18.3% YoY decline in power & fuel...

Ambuja Cement (ACEM) reported EBITDA/t at Rs 994 (highest since 3QCY12, vs. estimate of Rs 855/t, - 61.5% YoY, 40.0% QoQ). Realisations were strong (Rs 4,344/t, 3.7% YoY, 7.2% QoQ, inline) but Lower P&F costs (-18.6% YoY, -6.8% QoQ, -6.2% vs est.), freight (-6.1% YoY, -3.3% QoQ, -5.7% vs est. and RM costs (-3.1% YoY, -4.4% QoQ, -4.4% vs est.) drove the beat. With the govt nod, Ambuja Cement will become the holdco for ACC (50% stake). LafargeHolcim will help itself to ~Rs 145.8bn, while raising its stake in Ambuja Cement to 60%, by dint of its majority stakes in both companies (50.30/50.55% in ACC/ACEM respectively). On proforma nos, ACEM trades at 15.5/11.0x CY16/17 EV/EBITDA, 21.3x CY17 P/E and US$155/t. The entity will lag peers on volume growth and profitability, given years of underinvestment by LafargeHolcim. HDFC Securities Maintain SELL with a TP of Rs 200 (ACEM/ACC at 8.58.0x CY17 EV/EBITDA).

Trendlyne has 19 reports on AMBUJACEM updated in the last year from 6 brokers with an average target of Rs 248.3. Brokers have a rating for AMBUJACEM with 2 price downgrades,2 downgrades,4 price upgrades,1 upgrade in past 6 months and 5 price downgrades,5 price upgrades,2 upgrades in past 1 Year.

Ambuja's operating results in Q2CY16 were largely in line with our estimates and beat consensus by 12% despite the miss on volumes (like its sister concern ACC). In our opinion, Ambuja has once again played the volume?cut strategy to benefit in terms of realisations (realisations up 7% qoq, beat all peers). Management interactions suggest that highest exposure to North India among all peers helped. 9 EBITDA/tonne at Rs 994 (+62% yoy; +40% qoq) is in line with the industry leader, UltraTech, whose blended EBITDA (inclusive of white cement) was at ~Rs 1,012.Cost excellence continues at Ambuja. Opex/tonne lower by 6% yoy; flat qoq. We see an upgrade potential here for Ambuja, given that the consolidation with ACC is likely to be through shortly.For the time being, Phillip Capital maintain estimates and target multiple of 15x EV/EBITDA for Ambuja. Factoring in consolidation with ACC, with a 10% holding discount,upgrade price target to Rs 300 (+11%; Rs 230 earlier).

Trendlyne has 19 reports on AMBUJACEM updated in the last year from 6 brokers with an average target of Rs 248.3. Brokers have a rating for AMBUJACEM with 2 price downgrades,2 downgrades,4 price upgrades,1 upgrade in past 6 months and 5 price downgrades,5 price upgrades,2 upgrades in past 1 Year.

Ambuja's Q2CY16 EBITDA of Rs 5.81 bn was 18% higher than our estimate (~ 15% higher than consensus). This was on account of better realisation (2% higher than estimate) lower than expected total cost/t which remained flat QoQ (vs. estimate of 3% increase QoQ). EBITDA/t improved 62% YoY to Rs 1009/t (better than our estimate of Rs 823/t). However, volume declined 2% YoY due to muted demand in some of its key markets and lack of capacity expansions. Going ahead, we increase CY16E EBITDA estimate by ~ 5% to factor in lower cost. We expect operational performance to improve during CY16E-17E after a muted CY15 (led by pick-up in volumes & improvement in margins). Implied standalone valuation at 15.6x EV/EBITDA CY17E looks pricey and factors in most of the positives. We maintain Sell with target price of 255.

ACEM continues the CY16 on a good note. Thanks to Northern region, realization improved at 3.4% YoY. Though the revenue growth was below our expectation at Rs25 bn, increased use of petcoke and other operational efficiency led to stupendous jump in EBITA/t. The reported EBITDA was up nearly by two-thirds at Rs6 bn. Even after valuing at 15x CY17 standalone EV/EBITDA and ACC's stake at market value, we see little upside to the stock. Post CCEA approval for ACEM's linear structure, we revise our TP upwards to Rs251 (from earlier Rs213). And maintain our recommendation at HOLD. Key Highlights and Investment Rationale...

Volumes disappointing: Ambuja Cements’ (ACEM) 2QCY16 revenues of INR25.4b (+2% YoY) missed estimates of INR27.9b, led by muted volume growth (5.88mt, -3.2% YoY). Dismal volumes were offset by an improvement in realizations (+8.9% QoQ, +5.3% YoY). ? Profitability at 15-quarter high: EBITDA grew 59% YoY to INR5.8b, translating into margin of 22.9% (+5.4pp QoQ, +8.2pp YoY). EBITDA/ton stood at INR1,009 (+INR300 QoQ, +INR394 YoY), representing a 15-quarter high, mainly led by strong realizations of INR4,412/ton (+7.2% QoQ, +3.7% YoY). North region performance was the best with a 12% YoY improvement in pricing. PAT stood at INR4b (in line with estimates, +76.5% YoY). ACEM’s profitability should witness a meaningful improvement in the coming quarters if its favorable cost structure, growth momentum and the prevailing spot cement prices remain intact. Motilal Oswal Maintain Buy with a TP of INR316/share (17% upside).

Trendlyne has 19 reports on AMBUJACEM updated in the last year from 6 brokers with an average target of Rs 248.3.Brokers have a rating for AMBUJACEM with 2 downgrades,2 price downgrades,1 upgrade,4 price upgrades in past 6 months and 5 price downgrades,2 price upgrades,5 price upgrades in past 1 Year.

Strong Operating Performance on Cost Reduction Measures Notwithstanding subdued sales volume, Ambuja Cements (ACL) has reported an impressive and better-than-expected operating performance with operating profit growing by +59% yoy & +37% qoq to Rs5.81bn in 2QCY16 owing to healthy uptick in realization (+4% yoy & +6% qoq) and cost-reduction measures. Operating cost/ tonne declined by ~6% yoy & ~1% qoq mainly aided by cost benefits in terms of higher usage of petcoke in kiln (60% v/s 45%), low packaging costs and cost optimization initiatives. EBITDA/tonne stood at Rs997 vis--vis Rs615 & Rs718 in 2QCY15 & 1QCY16,...

Ambuja Cement (ACEM) reported EBITDA/t at Rs 710 (vs. estimate of Rs 678/t, -18.3% YoY, 28.8% QoQ) driven by volumes ( 9.9% YoY), while realisations dragged (-9.2% YoY, -5.0% QoQ). Higher volumes and savings on energy helped costs improve ~10% QoQ and offset the decline.

Ambuja's results were below our expectation. Ambuja's Q1CY16 revenues declined 0.3% YoY to | 2,418.3 crore (below I-direct estimate of | 2,499.1 crore) led by a sharp fall in realisations (down...