Buy Ambuja Cements; target of Rs 260: Religare Capital

Religare Capital`s research report on Ambuja CementsRevenues in line: Topline grew 9% YoY to Rs 22bn driven by an 11% growth in realisations, even as volumes dipped 2% YoY. QoQ, realisations declined by ~2% (RCMLe: -2.5%) due to a correction in prices across regions (except the south). EBITDA/t ahead of estimates at Rs 788: Higher realisations negated the impact of cost pressures, enabling ACEM to clock an EBITDA/t of Rs 788 (RCMLe: Rs 750), higher Rs 266 YoY/lower Rs 194 QoQ. While RM cost/t slid YoY (higher QoQ) owing to inventory adjustments, other costs jumped across most line items YoY. Power & fuel costs shot up 13.5% YoY (but remained flat QoQ). Freight costs rose 6.3% YoY due to higher diesel prices, while lower operating efficiencies pushed up other expenses YoY. PAT at Rs 2.4bn (+91% YoY; in line with estimates) was boosted by better operating profits and higher other income. Maintain BUY: We cut our CY14/CY15/CY16 estimates by 5%/5%/4% (to build in lower volumes/higher cost) and roll over to a Dec’15 of 260 (based on 11x one-year fwd. EV/EBITDA). A major presence in the key north and west regions augurs well for the company’s volume/price growth over the next few years as we expect utilisation levels in these regions to touch 90%+. We maintain BUY and would recommend accumulating the stock on any weakness. "ACEM reported an in-line Q3 PAT of Rs 2.4bn but a slightly higher-than-estimated EBITDA/t of Rs 788 (RCMLe: Rs 750; +Rs 266 YoY/-Rs 194 QoQ), as sharper-than-expected realisation growth negated cost pressures across the board. We adjust our estimates for lower volumes, and roll over to a Dec’15 TP of Rs 260 (from a Sep’15 TP of Rs 255) set at 11x one-year fwd. EV/EBITDA. We expect ACEM to report better realisations ahead as it benefits from higher utilisation (90%+ in the north/west) over the next 2–3 years. BUY,” says Religare Capital research report. 

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