Accumulate Ambuja Cement; target of Rs 257: Dolat Capital Market

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Dolat Capital Market's research report on Ambuja Cement

ACEM posted 8.6% YoY growth in revenue to Rs28.5 bn due to 8.4% YoY volume growth to 5.7mt and 0.2% YoY (-3.2% QoQ) realization growth to Rs5,031. EBITDA increased by 54.7% YoY to Rs6.8 bn and PAT increased by 87.8% YoY to Rs4.4 bn. ACEM has declared an interim dividend of Rs17/sh resulting in huge cash outflow Rs33.8 bn. Cash on books as on Jun’20 stood at Rs54.2 bn. We expect 4.4%/ 11.9%/ 7.9% revenue/ EBITDA/ APAT CAGR over CY19-22E led by -7.2%/ 10.1%/ 5.0% volume growth and 3.0%/ 1.5%/ 1.5% cement realization growth in CY20E/ CY21E/ CY22E. We increase our revenue/ EBITDA margin/ APAT estimates by 4.5%/ 118 bps/ 9.5% for CY20E to factor 9MCY20 results. We broadly maintain CY21E and introduce CY22E estimates. The full benefit of uptick in volumes from planned expansion (3.1mtpa clinker and 1.8mtpa grinding at Marwar Mundwa in Rajasthan) will come in H2CY21E. Interim dividend of Rs17/ share is positive in the short term, we expect total Rs31.8 bn FCFF in CY21E and CY22E. If such huge cash outflow through dividend is repeated, it may show uncertainty on the future growth outlook.

Outlook

The recent run up of 26% in stock price in last 3 months leaves limited upside. Thus, we downgrade to Accumulate with a revised TP of Rs257 based on (11x standalone Sep’22E EV/EBITDA) and ACEM’s 50% stake in ACC at 20% holding discount.

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