Ambuja to see earnings downgrade post Q3 nos: Experts

Ambuja Cements reported a 45 percent fall in net profit in the third quarter. Mangesh Bhadang, Cement Analyst, Quant Broking feels the cement major took a hit on costs side, much more than market's expectations just like ACC and UltraTech. He sees 20 percent cut on earnings for these cement companies.

Also Read: Ambuja Cements misses forecast, Q3 net down 45% to Rs 166cr
V Srinivasan, Research Analyst, Angel Broking, says he had expected a profit decline, but the numbers are disappointing. According to him, the biggest problem faced by Ambuja in this quarter has been poor realisations. Angel Broking too will downgrade earnings for the company. Below is the verbatim transcript of Mangesh Bhadang & V Srinivasan's interview on CNBC-TV18 Mangesh Bhadang, Cement Analyst, Quant Broking Q: Have you had a look at Ambuja Cements Q3 numbers? What are you making of them? Bhadang: The bottom-line that is Rs 166 crore. It is much below expectations. Q: The volumes have come in at around 4.89 million tonne, so that is on the upper end. The revenue figure has come in at around Rs 2,005 crore odd. How do they fit in with your expectations? Bhadang: The volumes are just tad lower than what we were expecting, even on the top-line it is lower, but I think the hit has come on the cost side which is what we have seen even in ACC and UltraTech's case. So on cost side they have taken a hit which is probably much more than what market was expecting. We were looking at a number of around Rs 230 crore in terms of PAT, but the number has come much below what we were expecting. Q: What would you do now? Would you cut your EPS target? Would you cut your target price on both ACC and Ambuja Cement? Bhadang: I see more than 20 percent cut on earnings for these companies and even if you look at consensus, even the consensus of the street will come down by that much. If better sense prevails there will some cut in price tomorrow. Q: You believe that the worst is not over for the cement industry, expecting cuts of nearly 20 percent? Bhadang: Even though for December and March quarter we may see some pricing upticks, but the costs are going to be as aggressive as well. So I do not see a much improvement in profitability. Given the weak demand-supply scenario for the sector this is going to persist for sometime. So it is not like good days are back again. We will see some cuts in price targets as well as in the rating on the stock. V Srinivasan, Research Analyst, Angel Broking Q: What do you think about the numbers, very disappointed or do you expect a similar reaction like we saw in ACC? Srinivasan: Numbers certainly are disappointing as it was a case with other cement players who had declared their results for the quarter.
We had always estimated a decline on the profitability front for the quarter but the actual numbers which have come is certainly disappointing.
EBITDA margin of around 12.7 percent certainly is a big disappointment. Q: What do you think about the volumes and the realizations because the volumes have come at the higher end while the revenues have come in at the lower end, so, I think the realizations would be lower and the margins are at 12.7 percent? Srinivasan: Biggest problem faced by the company this quarter has been poor realizations because even on the cost front the companies have managed to control their costs through some efficiency measures but what has really created the problem for them is the decline in realization. Q: Would you be having some kind of EPS cuts and target price cuts post these disappointing numbers for both these two cement majors? Srinivasan: We would certainly have to downgrade our earnings for this company.
We currently have a neutral rating on the stock. So, we will be maintaining the rating.