At 12x EV/Ebitda, Ambuja Cement shares are the most expensive in cement sector under coverage, almost entering uncharted territory in terms of historical trading range. This despite a lacklustre earning performance — 51% decline in profitability, 9% y-o-y fall in realisations and tepid volume growth (2% y-o-y). We maintain our sell rating on the stock with a target price of R155.
Ambuja Cement reported net sales of R2,000 crore (-8% y-o-y, -15% q-o-q), operating profit of R250 crore (-50% y-o-y, -48% q-o-q) and net income of R140 crore (-54% y-o-y, -56% q-o-q) against our estimates of R2,000 crore, R300 crore and R190 crore, respectively. While net sales were in line with estimates, a sharp inflation in raw material costs (+330% y-o-y, +117% q-o-q) led to a near-15% miss in operating profits.
Reported net income of R170 crore also includes: (a) extraordinary income of R24.8 crore from sale of real estate and change in depreciation method; and (b) tax credit of R23.3 crore related to earlier years.
Ambuja Cements reported a 9% y-o-y decline in cement realisations, the drop being much sharper than both UltraTech and ACC
(-5% y-o-y each). However, volume growth for the quarter at 2% was ahead of peers though 9MCY13 witnessed a volume decline of 2%.
We revise our earnings estimates for CY2013E and CY2014E downwards by 4-5% to R7.7/share and R9.6/share, respectively, factoring in weaker realisations and a steeper cost trajectory.
- Kotak Institutional Equities