Hold Ambuja Cement; target of Rs 205: ICICI Direct

ICICI Direct's research report on Ambuja Cement

For Q2CY19, Ambuja reported mixed bag results vis-à-vis our expectations. Revenues remained flat YoY at Rs 2978 crore (below I-direct estimate of Rs 3167 crore). While realisations grew 8% YoY to Rs 5120/t (vs. I-direct estimate of Rs 4900/t), the same was overshadowed by a dip in volumes by 8.6% YoY to 5.82 MT (vs. I-direct estimate of 6.45 MT) owing to weak demand in the north and west regions where Ambuja has a strong presence. Despite flattish revenues, better realisations helped the company register 12.2% growth in EBITDA to Rs 698 crore (above I-direct estimate of Rs 653 crore). Margins expanded 282 bps YoY to 23.4% and EBITDA/t witnessed an increase of 22.8% YoY to Rs 1200/t. However, PAT came in line with our estimates at Rs 412 crore owing to higher tax provisions up 21% YoY against PBT de-growth of ~8% YoY.

Outlook

However capacity bottlenecks would continue to pose a challenge to the growth of the company, which should lead to market share loss in its markets. On an SOTP basis (refer Exhibit 14), we arrive at a target price of Rs 200/share for Ambuja cements. Accordingly, we maintain our HOLD rating.