Buy Ambuja Cements; tgt of Rs 144: Anand Rathi Securities

“Ambuja Cements’ PAT was higher than estimated; declining 14% yoy due to tax write-back; but PBT was in line. Drop in realization and rise in fuel cost led to yoy dip in EBITDA per ton. We expect CY11 earnings to be strong, driven by price recovery over Jan-Feb ’11 and savings on clinker purchase. We reduce our CY11e net profit by 4% and target price to Rs 144 from Rs 148. Realization declined 3.5% yoy and 1.3% qoq to Rs 3,550/ton. Cement sales rose 4.5% yoy to 5m tons (up 16% qoq). Cement prices have risen up to Rs 30 per bag YTDCY11, across regions and would drive profitability in CY11.”

“EBITDA/ton drops 32% yoy and 4% qoq to Rs 625, due to drop in realization and rise in fuel cost. Benefit of lower raw material cost (down Rs 180/ton yoy due to lower clinker purchases) was offset by higher power & fuel cost at Rs 900/ ton (up Rs 210/ton on higher clinker production and fuel prices). Ambuja incurred Rs 245m cost in 4QCY10 for clinker purchases due to a 6-week shutdown of plants at Himachal Pradesh due to strike by transporters. PAT was higher than estimated owing to tax write-back (Rs 371m) related to earlier years.”

“Two grinding units (Maratha; Bhatapara) will commence in beginning-CY11, boosting capacity to 27m tons. Ambuja expects price instability and cost pressure in the short term and demand growth to be strong in the long term. At our target price of Rs 144, the stock would trade at 8x CY11 EV/EBITDA. Our target price implies PE of 14x CY11 and EV/ton of USD 155. Key risk: Decline in realization. Maintain Buy,” says Anand Rathi Securities research report.

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