Experts say Ambuja Cements Q3 nos broadly in-line

Ambuja Cements today reported a 44 per cent jump in net profit for the July-September quarter at Rs 239 crore on improved sales realisation. However, Sales volume fell marginally to 4.67 million tonnes from 4.72 million tonnes a year ago. Commenting on the numbers Piyush Jain, Equity Research Analyst, Morningstar India says overall the business efficiency appears to be good but the only disppointment was seen on the volume front. Focus on cost optimisation helped margins for the company, says Jain. According to Mihir Jhaveri, Director-Institutional Research, Religare Capital to the numbers was in line at the EBITDA level.However, Mangesh Bhadang, Research Analyst, Quant Capital is a tad disappointed on the topline and PAT front. He sees limited upside for the stock and would buy on dips but advices current investors to hold on.Below is the transcript of Piyush Jain, Mihir Jhaveri and Mangesh Bhadang’s interview with on CNBC-TV18Q: First look at the numbers, topline is it a miss?Jain: Topline is a miss primarily because as you have already said the volume has come down. We were also expecting around 5 percent, it has come around 4.7 percent. However, the pricing seems to be pretty much inline with expectations. We should keep in mind that North India saw a price correction in this quarter. So, with respect to that I think the pricing looks good.Their cost control, cost optimisation has worked. So, margins are definitely on the right side. We are happy with the margins. If you compare Ambuja and what ACC reported today, ACC had a cost increase while Ambuja has shown that cost of material has gone down. They had a good control over the fuel, the freight cost also. So, cost definitely is positive.The only disappointment is coming from the volumes. Overall the business efficiency appears to be good.If I compare to the standalone Ambuja performance and I see consolidated because Ambuja owns 50 percent of ACC, if I consolidate it then the numbers actually look to be good. The margins are good and I think over the next 3-4 quarters the cost efficiency measures are going to have help improving the margins further.Q: How did the numbers look to you?Jhaveri: The numbers look pretty inline. The margins are tad better that what we estimated but in terms of consensus the numbers look pretty inline at the EBITDA level.Q: What about the volumes? Were you factoring in 4.7 million tonnes?Jhaveri: No I believe that probably there should be some clinker volumes which would come in. You have to look at holding that clinker volume that has come in. So, that needs to be factored in probably. So, volumes our estimate was around 5 odd million tonnes.Q: So, you believe that it could be some clinker volumes that will be added to that 4.67?Jhaveri: Probably YesQ: First looking at the numbers did the stock miss the top-line or was inline with your estimates?Bhadang: It’s a miss on top-line, earnings before interest, taxes, depreciation, and amortization (EBITDA) as well as Profit After Tax (PAT) and disappointment has been in the volumes it has been set and given the fact that year-to-date (YTD) or in fact even this quarter we have seen very good volume growth from the industry.ACC and Ambuja Cement have not participated in it so it is a concern. Basically if I am looking at the growth stories then there are certain other options including UltraTech Cement available to me compared to these two companies.Having said that the EBITDA per tonne which has been reported around Rs 840 is more or less better. However if suppose we are not going to see volume growth in this market then obviously the investors would have been missing out on something so not a good set of a result in my view.Q: At Rs 800 and 3,840 EBITDA per tonne do you think they are peaked out or do you think they can do Rs 900 the next quarter because just on the year-on-year basis that number is a good job of close to around 40-50 percent. I know it is coming of a low base but do you think that gives some glimmer of hope?Bhadang: Ideally for the industry as a whole we are expecting the EBITDA per tonne numbers to improve so it should clock above Rs 1,000 in next year ideally. However the concern that I am sharing is we are expecting the realisation growth to be much higher than the cost growth so that would have led to higher margin expansion. However now realisation have improved if you see there is almost a 13-14 percent year-on-year (y-o-y) growth in realisation but it is largely because of the cost push through that the company has done. Basically the increase in realisation that we have seen in the market is largely to pass on the cost and probably we may not see the kind of margin expansion in FY15 that should have happened so that could be a concerned but basically the numbers are not on the expected line. The volume should have been better as well as the margin.Q: What’s your view on the stock any kind of revision going ahead? What’s your current take on the stock?Bhadang: There would be certain or still small upside if you look at the CY15-CY16 numbers but that upside would be limited. So I would wait for some correction to get into the stock. However I would definitely not be a seller if I am holding the stock.