Mr. Kunal Motishaw - Research Analyst at Reliance Securities.
Ambuja Cements (ACEM) reported a better-than-expected performance, despite weak realization, mainly due to a lower-than-expected jump in input costs due to control over fixed expenses. EBITDA stood at Rs7.2bn (-23% YoY, +41% QoQ), above our estimate of ~Rs6.6bn. EBITDA/tonne stood at Rs962 vs. Rs1,303 in 1QCY21 and Rs731 in 4QCY21. Operating cost/tonne at Rs4,185 increased 13.5% YoY, but fell 7.5% QoQ. The surge in fuel prices resulted in a 34% YoY increase in input costs/tonne (RM+P&F) to Rs2,086 (-2.5% QoQ). However, lower overall employee cost led to a 13.5% YoY and 19.6% QoQ decline in staff cost to Rs204/tonne, while lower packaging costs led to a 20.5% QoQ fall in other expenditure/tonne to Rs737. Network optimization enabled to see a 5.6% YoY and 3.9% QoQ drop in freight cost/tonne during the quarter. Overall operating cost/tonne was lower by Rs285/tonne, compared to our estimate. Average realization/tonne however remained weak and declined by 2% QoQ to Rs5,147 (vs. our estimate of Rs5,371), despite a focus on premium products and high value-added products. Sales volume increased by 4.5% YoY and 7% QoQ to 7.5mnT, as against our estimate of 7.4mnT. APAT fell 26% YoY but increased sharply by 56% QoQ to Rs4.95bn, above our estimate of Rs4.25bn. As per management's estimates, the company is accruing Rs300/t of benefit on account of its ICAN initiative. Going forward, incremental efficiencies are expected to be brought in through WHR/RE capacities (25-28% of energy from WHR), ramp-up in AFR usage (target of 25%) and increased blending. Further, the management has laid down the roadmap to 50MTPA capacity, with 7MTPA of capacity expansion in the East in phase 1 (expected by mid-CY24). We have increased CY22E/CY23E EBITDA estimates by 2%/3% factoring the better-than-expected performance during the quarter under review. Keeping the target multiple unchanged for CY23E at 14x for the standalone business, we maintain our BUY rating, with a revised 1-year SOTP-based Target Price of Rs420 (Rs415 earlier).
EBITDA Outperformance on Lower-than-Expected Costs
ACEM reported revenue of Rs38.5bn (+8% YoY, +5% QoQ), EBITDA of Rs7.2bn (-23% YoY, +41% QoQ) and PAT of Rs4.95bn (-26% YoY, +56% QoQ), against our estimate of Rs39.5bn, Rs6.62bn and Rs4.3bn, respectively. Volumes increased by 4.5% YoY to 7.5mn tons (+7% QoQ), mainly led by an instant ramp-up at the recently-commissioned Marwar plant at Rajasthan and strong demand recovery in Mar'22, after the weakness during Jan-Feb'22. Blended realization declined to Rs5,147/tonne (+3% YoY, -2% QoQ) due to back-ended price hikes in key markets. Blended cost declined to Rs4,185/ton (+13.5% YoY, -7.5% QoQ) mainly led by lower power costs on a high 4QCY21 base, along with lower staff and other expenses.
Next Leg of Expansion to Address Growth Concerns
ACEM's Marwa-Mundwa expansion - 3mtpa clinker and 1.8mtpa grinding capacity - was commissioned in Oct'21 and is ramping up well. The company is now working on a brownfield expansion of 1.5mtpa grinding unit in Ropar, Punjab. Further, it has announced a 7mtpa brownfield expansion through a mix of clinker and split grinding unit in the East for a capex of Rs35bn. These projects would increase ACEM's capacity to 40mtpa by CY24, keeping it on track to reach 50mtpa capacity by CY25-26.
Outlook & Valuation
ACEM reported an EBITDA beat in 1QCY22 on strong fixed cost controls and benefitting from its low-cost fuel inventory. Going forward, we expect ACEM to deliver a healthy 7.4%/12.4% CAGR in Volume/EBITDA over CY21-CY23E on the back of recently commissioned capacities in Rajasthan (3mnT clinker and 1.8mnT cement) and continued emphasis on reducing operating cost by improving efficiency, thrust on higher green energy and indication of launching more premium products. These certainly bode well from the long-term perspective. Hence, we marginally increase the EBITDA estimates by 2%/3% for CY22E/CY23E to factor the better-than-expected performance. Keeping the target multiple unchanged for CY23E at 14x, we maintain our BUY rating, with a revised SOTP-based 12-month Target Price of Rs420 (Rs415 earlier). In the near term, we believe that the stake sale talks by parent Holcim Ltd will dictate the stock's price movement.
Shares of Ambuja Cements Limited was last trading in BSE at Rs. 371.85 as compared to the previous close of Rs. 383.55. The total number of shares traded during the day was 348944 in over 8523 trades.
The stock hit an intraday high of Rs. 385.60 and intraday low of 370.55. The net turnover during the day was Rs. 132041246.00. |
