ICICI Direct recommended hold rating on Ambuja Cement with a target price of Rs 190 in its research report dated October 22, 2019.
ICICI Direct's research report on Ambuja Cement
Ambuja Cement reported a disappointing set of Q3CY19 numbers on all fronts. Revenues for the quarter were broadly flat YoY at Rs 2,626 crore (below I-direct estimates of Rs 2,763 crore). Volumes fell 4.2% YoY to 5.23 MT on account of heavy rains and flooding in Maharashtra, Gujarat, Uttar Pradesh and Bihar (I-direct estimates: 5.55 MT). Realisations increased ~5% YoY to Rs 5,021/t led by improved pricing and higher sales of premium products. EBITDA margins expanded ~300 bps YoY to 16.7% (below I-direct estimates of 20.5%). While realisations grew 5% YoY, the same did not reflect in the profitability of the company due to higher power & fuel costs and other expenses. Despite these costs overrun, EBITDA/t increased 28% YoY to ~Rs 840/t, driven mainly by improvement in realisations. EBITDA increased 22.8% YoY to Rs 440 crore (below I-direct estimate of Rs 560 crore). Accordingly, PAT increased 31.3% YoY to Rs 235 crore (below I-direct estimates of Rs 369 crore). The board has also approved the merger of one of the company’s subsidiaries, Dirk India Pvt Ltd with Ambuja Cements, subject to the requisite approvals.
Ambuja Cements is debt-free. Despite having a greenfield project under way in Rajasthan, the strong liquidity supported by healthy cash flow generation would not require the company to raise any debt. However, considering the weak volume growth, we cut the target EV/EBITDA multiple marginally for Ambuja to 10x on FY21E earnings. Thus, we arrive at a target price of Rs 190 and maintain HOLD rating on Ambuja Cements.
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