Prabhudas Lilladher's research report on Ambuja Cement
Ambuja Cement (ACEM) started the new calendar year with better than expected earnings. EBITDA fell 19% YoY to Rs7.9bn, above our/consensus estimates (CE) by 10%/16%. Higher clinker sales volume and lower other expenses drove the beat. While, we maintain our estimates as elevated other expenses in H2, a usual trend, would keep margins under check. ACEM delivered material turnaround in earnings over last couple of years. The major contributors to this turnaround were multifold increase in volumes under MSA, optimisation of fixed costs and reduction in specific energy consumption. On the incremental basis, we don’t see meaningful scope for further cost reduction. Theme of capacity expansion would get delayed due to likely exit of parent.
As the valuations have surged to rich territory with EV/EBITDA of 14x and EV/t of USD170/t, we downgrade rating on stock to Hold with TP of Rs400 with EV/EBITDA of 14.5x CY23e.