HDFC Securities is bullish on Ambuja Cements has recommended buy rating on the stock with a target price of Rs 240 in its research report dated October 19, 2019.
HDFC Securities' research report on Ambuja Cements
Utilization slumps on weak demand: Sales volume declined 4/10% YoY/QoQ to 5.2mn MT, driven by industry wide weak demand during the quarter. Utilization declined to 71% from 74/79% YoY/QoQ. Robust pricing despite weak demand: Ambuja surprised positively on NSR front. Despite heavy rains and floods in its markets, its NSR fell a modest 2% QoQ (up 5% YoY) to Rs 5021/MT vs our est of 5.5% decline. This indicates Ambuja has been price-focused in the trade segment and did not push volumes during weak demand. Opex inflation jumped 7% QoQ (+1% YoY)to Rs 4,180/MT. The co reported 3% higher unitary input costs QoQ and 25% higher unitary other expense, which led to a sharp inflation QoQ. Consumption of high cost fuel inventory led to higher unitary input costs. Higher advertisement and maintenance expense further drove up the other expenses, even though volumes declined. Amidst these, Ambuja further cut its unitary logistics cost by 1% QoQ, leading to a 10% YoY reduction. This moderated opex inflation YoY at +1%. Robust margin show continues aided by pricing tailwinds: Ambuja’s 3QCY19 unitary EBITDA jumped 28% YoY to Rs 841/MT to its 7-year high (in a monsoon qtr)! Thus, despite weak demand, robust pricing drove up EBITDA/PAT by 23/31% YoY. Other highlights: Share of traded goods purchased (mainly with ACC) increased to 1.1% vs 0.8/0.1% QoQ/YoY. Also, Ambuja is still evaluating the recently announced changes in corporate tax rate, the same hasn’t been incorporated in its 3Q numbers.
We recommend a BUY on Ambuja Cements with a TP of Rs 240 (SOTP based). In 3QCY19, strong pricing more than offsets weak demand. Thus, standalone net sales/EBITDA/PAT rose 1/23/31% YoY to Rs 26.26/4.40/2.35bn respectively.
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