Buy Ambuja Cements; target of Rs 230: HDFC Securities

HDFC Securities' research report on Ambuja Cements

Ambuja delivered earnings beat in 2QCY20 as other expenses fell sharply, cushioning the impact of the COVID-led revenue loss. Standalone revenue/EBITDA fell 27/15% YoY to Rs 21.77/5.95bn. Dividend income from ACC, however, buoyed APAT by 10% to Rs 4.53bn. Volume fell 29% YoY, mainly on the large sales loss in April. However, execution of pent-up retail demand drove flattish volume growth in May/Jun. We expect continued traction in retail sales to yield slower volume decline of 10% in 2HCY20 vs the 19% YoY fall in 1H. We expect buoyant pricing in north markets, subdued energy cost outlook and healthy cost controls, to drive 8% EBITDA CAGR (CY19-22E). We maintain BUY with a revised target price of Rs 230.

Outlook

We maintain BUY with a revised SOTP of Rs 230/sh; we value standalone Ambuja at 11x its Jun’22E EBITDA and its 50% holding in ACC at a 20% discount to our target Mcap for ACC.

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