Oct-17 v-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 BUY CMP (Rs) 190 Target Price (Rs) 247 Potential Upside 29.7% Sensex 33,349 Nifty 10,030 Key Stock data BSE Code 500425 NSE Code Bloomberg AMBUJA CEM ACEM:IN Shares o/s, Cr (FV 1) 198.6 Market Cap (Rs Cr) 37,817 3M Avg Volume 37,52,578 52 week H/L 289/189 Shareholding Pattern (%) Mar-18 Jun-18 Sep-18 Promoter 63.1 63.1 63.1 FII 16.3 16.4 17.2 DII 13.0 12.7 11.7 Others 7.6 7.8 8.0 1 Year relative price performance 130 120 110 100 90 80 70 60 Research Analyst ACL Nifty 50 Mehernosh Panthaki, CA Mehernosh.panthaki@religare.com Revenue growth intact, but margins disappoint Ambuja Cements Ltd (ACL) reported subdued numbers for Q3CY18. While revenue growth at 12.7% YoY was in line with our estimates, the company disappointed on the profit front with a marginal 1.1% growth in EBITDA and 34.4% YoY decline in PAT. EBITDA margins contracted 158bps YoY to 13.7%, impacted by higher power & fuel and freight cost. However, notwithstanding 1-2 quarters of muted growth, we remain positive on ACL s long term growth prospects, given the anticipated revival in the cement demand and company s efforts towards brand building & distribution expansion. We maintain Buy on the stock with revised target price of Rs 247. Q3CY18 Result Update: Net Revenue (standalone) grew by 12.7% YoY to Rs 2,613.9cr, led by healthy volume growth of 9% (at 5.5 MT) and decent improvement in realizations. Healthy demand environment in the company s key markets resulted in good volume offtake, while increasing sales of premium products (Compocem, Roof Special and Cool Walls) kept the realizations healthy. The cement capacity utilization stood at 74% during the quarter, compared to 68% in Q3CY17. EBITDA grew marginally by 1.1% YoY to Rs 358.2cr, while EBITDA margins contracted 158bps YoY to 13.7%, impacted by higher power & fuel (+13.1%), freight cost (+19.1% due to rise in diesel prices) and other expenses (+15.1%). Lower other income (down 68.5% YoY on the back of absence of dividend income from its subsidiary ACC) and a sharp rise in the effective tax rate (+1001bps to 28.9%) impacted the PAT, which de-grew 34.4% YoY to Rs 178.6cr. Other key highlights: i) ACL is looking to set up a 3.1 MTPA (9,500 TPD) clinkerisation plant at Marwar Mundwa in Rajasthan. An initial investment of Rs.1,391cr towards the first phase of 1.7 MTPA (5000 TPD) capacity has been approved and is expected to commission in H2CY20. This would increase the total installed capacity to 31.4 MTPA, thus resulting in improved volume growth visibility over long term; ii) Focus would remain on steadily increasing sale of premium products going forward. Outlook & Valuation Led by anticipated revival in demand (especially in rth & West) and company s efforts towards brand building & distribution expansion, ACL s standalone net revenue, EBITDA and PAT are estimated to grow by 10%, 8.9% & 8.8% CAGR respectively over CY17-19E. Volume offtake is likely to remain healthy. Further, increasing sale of fast growing premium products would result in better realizations going forward. Moreover, the commencement of new clinkerisation facility in Rajasthan (from H2CY20) would wane out the ongoing concerns over capacity constraints and provide volume growth visibility over long term. While rising power & fuel prices and increasing freight cost will continue to put pressure on the margins in the near term, we expect the same to be offset by cost efficiency measures going ahead. We estimate a meaningful margin improvement in CY19E. Leverage free balance sheet, healthy cash flows and healthy dividend pay-outs should provide valuation comfort. Based on poor performance on the profit front, we have downgraded our EBITDA and PAT estimates by 5-11% for CY18 & CY19. We maintain Buy on the stock with revised target price of Rs 247. Financial Summary standalone Particulars, Rs cr CY16 CY17 CY18E CY19E Net Revenue 9,196.6 10,457.1 11,466.2 12,612.8 EBITDA 1,692.4 1,940.1 1,999.7 2,295.5 EBITDAM (%) 18.4 18.6 17.4 18.2 APAT 932.2 1,249.6 1,242.1 1,469.3 APATM (%) 10.1 11.9 10.8 11.6 EPS (Rs) 4.7 6.3 6.3 7.4 ROE (%) 6.3 6.4 6.2 7.2 EV/EBITDA (x) 20.8 17.7 17.0 14.6 October 29, 2018
P&L Account - standalone Particulars (cr) Q3CY18 Q3CY17 Y-o-Y % Q2CY18 Q-o-Q % Net Revenue 2,613.9 2,319.6 12.7 3,016.9-13.4 Raw Material Consumed 215.8 226.2-4.6 288.2-25.1 Stock Adjustment 89.3 44.7 99.9 (78.4) -214.0 Purchase of Finished Goods 2.8 480.0-99.4 1.4 102.1 Total Material Cost 308.0 750.9-59.0 211.3 45.8 Gross Profit 2,306.0 1,568.7 47.0 2,805.6-17.8 Employee Expenses 163.3 161.3 1.3 175.8-7.1 Other Expenses 1,784.5 1,053.1 69.5 2,007.5-11.1 EBITDA 358.2 354.4 1.1 622.3-42.5 EBITDAM (%) 13.7 15.3-158bps 20.6-693bps Depreciation 136.0 140.3-3.1 136.4-0.3 EBIT 222.2 214.1 3.8 485.9-54.3 Other Income 48.2 153.1-68.5 191.1-74.8 Interest 19.2 31.3-38.6 19.2 - PBT 251.2 335.9-25.2 657.8-61.8 Tax 72.6 63.5 14.4 158.6-54.2 Tax Rate (% on PBT) 28.9 18.9 1,001bps 24.1 480bps PAT 178.6 272.4-34.4 499.3-64.2 PATM (%) 6.8 11.7-491bps 16.5-972bps EPS 0.9 1.4-34.4 2.5-64.2
P&L Account - standalone Net Revenue 9,196.6 10,457.1 11,466.2 12,612.8 Growth (%) (2.8) 13.7 9.7 10.0 Material Expenses 746.5 846.5 882.9 920.7 Employee Expenses 590.9 661.4 676.5 731.5 Other Operating Expenses 6,166.9 7,009.1 7,907.1 8,665.0 EBITDA 1,692.4 1,940.1 1,999.7 2,295.5 EBITDAM (%) 18.4 18.6 17.4 18.2 EBITDA Growth (%) 10.5 14.6 3.1 14.8 Depreciation 848.9 572.9 558.3 592.8 EBIT 843.5 1,367.2 1,441.4 1,702.8 Other Income 510.2 359.1 346.0 391.6 Interest 74.2 107.2 85.9 81.6 PBT 1,279.5 1,619.1 1,701.5 2,012.7 Tax 347.2 369.6 459.4 543.4 PAT 932.2 1,249.6 1,242.1 1,469.3 PAT Growth (%) 15.4 34.0 (0.6) 18.3 EPS 4.7 6.3 6.3 7.4 EPS Growth (%) (9.8) 34.0 (0.6) 18.3 Balance sheet - standalone SOURCES OF FUNDS Share Capital 397.1 397.1 397.1 397.1 Reserves 18,959.7 19,576.1 19,865.1 20,321.7 Total Shareholders Funds 19,356.9 19,973.2 20,262.2 20,718.8 Total Debt 15.7 24.1 22.9 21.8 Net Deferred Taxes 497.3 458.4 458.4 458.4 Long Term Provisions & Oth- 51.2 44.2 48.5 53.3 TOTAL SOURCES OF FUNDS 19,921.1 20,499.9 20,791.9 21,252.2 APPLICATION OF FUNDS Net Block 5,941.6 5,722.0 5,463.7 5,170.9 CWIP 320.0 397.9 600.0 900.0 Investments 11,844.7 11,844.7 11,844.7 11,844.7 LT Loans & Advances and Oth- 1,032.8 1,160.4 1,272.9 1,400.2 Total n-current Assets 19,139.1 19,125.0 19,181.3 19,315.8 Inventories 937.5 1,052.5 1,146.6 1,252.6 Trade Receivables 395.8 308.0 345.6 397.4 Cash & Equivalents 2,578.5 3,497.1 3,844.3 4,350.3 ST Loans & Advances and Oth- 301.9 634.7 696.3 765.9 Total Current Assets 4,213.7 5,492.2 6,032.8 6,766.2 Trade Payables 815.3 1,028.9 1,068.1 1,140.3 Other Current Liabilities & 2,616.4 3,088.5 3,354.1 3,689.5 Total Current Liabilities 3,431.7 4,117.3 4,422.2 4,829.8 Net current Assets 782.0 1,374.9 1,610.6 1,936.4 TOTAL APPLICATION OF 19,921.1 20,499.9 20,791.9 21,252.2
Cash Flow statement - standalone Reported PBT 1,279.5 1,619.1 1,701.5 2,012.7 n-operating & EO items 371.7 277.1 252.6 285.9 Interest Expenses 74.2 107.2 85.9 81.6 Depreciation 848.9 572.9 558.3 592.8 Working Capital Change 151.4 325.7 111.6 180.2 Tax Paid 347.2 369.6 459.4 543.4 OPERATING CASH FLOW ( a ) 1,635.0 1,978.2 1,745.3 2,038.0 Capex 5,553.5 (428.2) (502.1) (600.0) Free Cash Flow 7,188.5 1,550.0 1,243.2 1,438.0 Investments (9,618.6) - - - n-operating income 371.7 277.1 252.6 285.9 Others (32.5) 89.0 (118.6) (135.3) INVESTING CASH FLOW ( b ) (3,725.8) (62.1) (368.1) (449.4) Debt Issuance / (Repaid) (7.0) 8.4 (1.2) (1.1) Interest Expenses (74.2) (107.2) (85.9) (81.6) FCFE 7,107.3 1,451.2 1,156.1 1,355.2 Dividend (667.2) (857.8) (953.1) (1,012.7) Others (64.8) (41.0) 10.3 12.8 FINANCING CASH FLOW ( c ) (726.4) (997.5) (1,030.0) (1,082.6) EO items - - - - NET CASH FLOW (a+b+c) (2,817.2) 918.6 347.3 506.0 Closing Cash 2,578.5 3,497.1 3,844.3 4,350.3 Key Financial ratios - standalone PROFITABILITY (%) GPM 91.9 91.9 92.3 92.7 EBITDAM 18.4 18.6 17.4 18.2 APATM 10.1 11.9 10.8 11.6 RoE 6.3 6.4 6.2 7.2 RoCE 5.7 6.9 7.2 8.3 EFFICIENCY Tax Rate (%) 27.1 22.8 27.0 27.0 Fixed Asset Turnover (x) 1.4 1.5 1.6 1.7 Cash Conversion Cycle (days) 20.6 11.6 13.5 14.8 Debt/Equity (x) 0.0 0.0 0.0 0.0 Interest Coverage (x) 11.4 12.8 16.8 20.9 PER SHARE DATA EPS 4.7 6.3 6.3 7.4 CEPS 9.0 9.2 9.1 10.4 BV 97.5 100.6 102.0 104.3 Dividend 2.8 3.6 4.0 4.3 VALUATION P/E (x) 40.6 30.3 30.4 25.7 P/BV (x) 2.0 1.9 1.9 1.8 EV/EBITDA (x) 20.8 17.7 17.0 14.6 Dividend Yield (%) 1.5 1.9 2.1 2.2
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