Buy Ambuja Cement; target of Rs 285: Prabhudas Lilladher

Prabhudas Lilladher's research report on Ambuja Cement

Ambuja Cement (ACEM) delivered strong set of Q3CY20 earnings with 17%/14% beat on our/consensus EBITDA estimates. The beat was primarily driven by steeper than expected reduction in costs. Factoring in lower costs and higher realisations, we upgrade our EBITDA estimates by 20%/11% for CY21e/CY22e. CY20 marked as ACEM’s strong performance on cost reduction front through 1) logistic efficiencies, 2) higher share of volumes under MSA and 3) sustainable cut in some of the fixed overheads of legacy nature. We remain confident that costs would fall further with rise in share of waste heat recovery plants (WHRP), increased spectrum of MSA covering additional volumes from upcoming new capacities in Rajasthan and Jharkhand and changing work culture. On the volumes front, the new greenfield plant in Rajasthan (commissioning by Q2CY21) would add 16-17% growth with strong margin profile>Rs1,200/t.

Outlook

The next leg of growth would be led by 5mtpa expansion in central region under ACC. Backed by attractive valuations and improved quality of operations, we reiterate BUY rating with revised TP of Rs285 (earlier Rs255), EV/EBITDA of 12.5x CY21e.