Edelweiss recommended hold rating on Ambuja Cement with a target price of Rs 280 in its research report dated May 04, 2018.
Edelweiss' research report on Ambuja Cement
Ambuja Cement’s (ACEM) Q1CY18 EBITDA of INR5.1bn (up 29% YoY on a low base) stood 7% ahead of estimates, despite the marginal disappointment on revenue front. Volumes grew just 3% YoY (vs. 5% estimate), while realisations dipped by 0.5% QoQ versus our flat estimate. However, variable cost surprised rising just 3% QoQ versus our 7% expectation. Better management of clinker inventory and focus on efficiency helped keep the fuel cost low, driving outperformance. Fixed cost stood largely in line. Ergo, EBITDA/t at INR814 (up 26% YoY) stood 9% ahead of estimates. While ACEM will also benefit from the expected rise in industry clinker utilisation, muted volumes (given no expansion until H2CY20) will keep a check on earnings growth. Maintain ‘HOLD’ with a TP of INR280.
With imminent rise in clinker utilisations, we maintain our positive view on the sector and believe ACEM will be a beneficiary of the same. However, volume growth will remain muted due to no capacity expansion until H2CY20. We continue to value the stock at 14x EV/EBITDA and ~50.05% stake in ACC at 30% discount to our fair value estimate. Maintain ‘HOLD/SU’ with a TP of INR280.
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