AMBUJA CEMENTS LIMITED Result Update: Q1 CY14 ISIN: INE079A01024 APRIL 25 th, 2014 STOCK DETAILS Sector Cement BSE Code 500425 Face Value 2.00 52wk. High / Low (Rs.) 220.05/147.55 Volume (2wk. Avg ) 237000 Market Cap ( Rs in mn ) 324712.50 Annual Estimated Results (A*: Actual / E*: Estimated) Years CY13A CY14E CY15E Net Sales 91603.50 102595.92 112855.51 EBITDA 20444.50 22718.36 25680.49 Net Profit 12945.70 14821.24 16751.85 EPS 8.37 9.59 10.83 P/E 25.08 21.91 19.38 Shareholding Pattern (%) 1 Year Comparative Graph AMBUJA CEMENTS LTD. S&P BSE SENSEX Recommendation BUY CMP 210.00 Target Price 235.00 SYNOPSIS Ambuja Cements Ltd (ACL) is one of the leading cement manufacturing companies in India and commenced cement production in 1986. During Q1 CY14, net profit jumps to Rs. 5200.10 mn against Rs. 4879.00 mn in the corresponding quarter ending of previous year, an increase of 6.58%. Revenue for the quarter rose by 3.61% to Rs. 26493.20 mn from Rs. 25570.20 mn, when compared with the prior year period. During Q1 CY14, the operating EBITDA is Rs. 5871.50 mn as against Rs. 5531.50 mn in Q1 CY13, an increase of 6.15%. EPS of the company stood at Rs. 3.36 a share during the quarter, registering 6.32% increase over previous year period. During the quarter, Cement and clinker sales, by volume, increased by 1.7% to 6.06 mn tones. During the quarter, the Hon ble High Courts of Gujarat and Delhi have approved the Scheme of Amalgamation of Holcim (India) Pvt. Ltd with the Company. Expansion at Sankrail grinding unit in West Bengal comprising the roller press and related logistics enhancements is expected to be commissioned in 2015. This will increase grinding capacity by 0.8 million ton. Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 9% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND COMPANY NAME (Rs.) Rs. in Mn. (Rs.) Ratio Ratio (%) Ambuja Cements Ltd 210.00 324712.50 8.37 25.08 3.42 180.00 Ultra Tech Cement Ltd 2088.15 573301.60 78.20 26.73 3.76 90.00 J K Cement Ltd 236.20 16761.60 10.99 21.81 0.99 65.00 ACC Ltd 1300.10 244353.80 58.30 22.30 3.12 300.00
Recommendation & Analysis - BUY Ambuja Cements Ltd has posted a net profit of Rs. 5200.10 mn for the quarter ended March 31, 2014 as compared to Rs. 4879.00 mn in previous year period, registered a growth of 6.58%. Revenue for the quarter rose by 3.61% to Rs. 26493.20 mn from Rs. 25570.20 mn, when compared with the prior year period. During Q1 CY14, the operating EBITDA is Rs. 5871.50 mn as against Rs. 5531.50 mn in Q1 CY13, an increase of 6.15%. During the quarter, Cement and clinker sales, by volume, increased by 1.7% to 6.06 mn tonnes. Expansion at Sankrail grinding unit in West Bengal comprising the roller press and related logistics enhancements is in progress and is expected to be commissioned in 2015. This will increase grinding capacity by 0.8 million ton. Although macro-economic condition remains challenging, construction activity is expected to pick up pace after elections. Cement demand is likely to show modest growth. The Company would continue to work on improving operational efficiencies, cost optimization and focus on customer & commercial excellence. We believe that these initiatives will preserve and grow margins of the company. Over 2012-2015E, we expect the company to post a CAGR of 5% and 9% in its lop-line and bottom-line. Hence, we recommend BUY for AMBUJA CEMENTS LTD with a target price of Rs. 235.00 for medium to long term investment. FINANCIAL HIGHLIGHTS (STANDALONE) Results updates- Q1 CY14, Ambuja Cements Ltd. (ACL) is one of the leading cement manufacturing companies in India and commenced cement production in 1986. In 2006, global cement major Holcim, acquired management control of the Company, reported its financial results for the quarter and year ended 31 st March, 2014. Months Mar-14 Mar-13 % Change Net Sales 26493.20 25570.20 3.61 PAT 5200.10 4879.00 6.58 EPS 3.36 3.16 6.32 EBITDA 7190.40 7026.70 2.33 The company s net profit jumps to Rs. 5200.10 million against Rs. 4879.00 million in the corresponding quarter ending of previous year, an increase of 6.58%. Revenue for the quarter rose by 3.61% to Rs. 26493.20 million from Rs. 25570.20 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 3.36 a share during the quarter, registering 6.32% increase over previous year period. Profit before interest, depreciation and tax is Rs. 7190.40 million as against Rs. 7026.70 million in the corresponding period of the previous year.
Expenditure: Break up of Expenditure Consumption Of raw material Employee Benefit Expenses Depreciation & Amortization Expense (Rs in Million) Q1 CY14 Q1 CY13 CHNG % 2016.80 1831.50 10% 1290.80 1207.60 7% 1197.40 1204.00-1% Power & Fuel 5783.20 5494.50 5% Fright & Forwarding on Finished products Fright & Forwarding on internal material transfer 5141.60 4942.50 4% 1517.90 1465.90 4% Other Expenditure 4329.00 4416.50-2% Latest Updates During the quarter, the Hon ble High Courts of Gujarat and Delhi have approved the Scheme of Amalgamation of Holcim (India) Pvt. Ltd with the Company. During the year 2013, the Company has commissioned a bulk packing terminal of 1 million ton capacity at Mangalore in Karnataka. Expansion at Sankrail grinding unit in the state of West Bengal comprising the roller press and related logistics enhancements is in progress and is expected to be commissioned in 2015. This will increase grinding capacity by 0.8 million ton. The Company is expanding its capacity at Rabriyawas unit in the state of Rajasthan by installing a roller press, which is likely to be commissioned in 2014. This will increase grinding capacity by 0.8 million ton. Company Profile Ambuja Cements Ltd, a part of a global conglomerate Holcim, is one of India s leading cement manufacturers and has completed over 25 years of operations. The cement industry is literally the building block of a nation. In that context Ambuja plays a key role in India s development and its blueprint for the future. It has always stayed on the fast track to growth and has gone on to become a major player in the country s cement sector. The company, initially called Gujarat Ambuja Cements Ltd, was founded by Narotam Sekhsaria in 1983 in partnership with Suresh Neotia. Global cement major Holcim acquired management control of Ambuja in 2006.
The Company has also made strategic investments in ACC Limited. Ambuja Cement is an established brand in India for Ordinary Portland Cement (OPC) and Pozzolana Portland Cement (PPC), with significant footprints across western, eastern and northern markets of India. Ambuja has grown dynamically over the past decade. Its current cement capacity is 27.25 million tons. The Company has five integrated cement manufacturing plants and eight cement grinding units across the country. It is the first Indian cement manufacturer to build a captive port with three terminals along the country s western coastline to facilitate timely, cost effective and environmentally cleaner shipments of bulk cement to its customers. The Company has its own fleet of ships. Business Areas The company is engaged in manufacture and market cement and clinker for both domestic and export markets. Types of cement Ambuja Cements produces cements are: Portland Pozzolano cement (PPC) PPC is manufactured by blending a mixture of ordinary portland cement and pozzolana materials such as fly ash, in proportions not less than 15 per cent and not over 35 per cent by weight of cement. Ordinary Portland cement (OPC) OPC contains a mixture of Portland clinker and gypsum ground to a very fine powder.
Financial Highlight STANDALONE (A*- Actual, E* -Estimations & Rs. In Millions) Balance sheet as at December 31 st, 2012-2015E SOURCES OF FUNDS Shareholder's Funds CY12A CY13A CY14E CY15E Share Capital 3084.40 3091.70 3092.50 3092.50 Reserves and Surplus 84966.20 91763.70 102775.34 114080.63 1. Sub Total - Net worth 88050.60 94855.40 105867.84 117173.13 Non Current Liabilities Long term borrowing 346.30 291.50 262.35 238.74 Deferred Tax Liabilities 5482.50 5643.20 5756.06 5871.19 Other Long term Liabilities 49.10 175.80 203.93 228.40 Long Term Provisions 208.90 248.00 282.72 316.65 2. Sub Total - Non Current Liabilities 6086.80 6358.50 6505.06 6654.97 Current Liabilities Trade Payables 9345.40 9745.20 10037.56 10137.93 Other Current Liabilities 6558.70 7923.90 8716.29 9239.27 Short Term Provisions 13089.30 10762.90 9256.09 8145.36 3. Sub Total - Current Liabilities 28993.40 28432.00 28009.94 27522.56 Total Liabilities (1+2+3) 123130.80 129645.90 140382.85 151350.66 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible Assets 58619.30 60621.60 64258.90 67761.04 Intangible Assets 4.40 3.70 4.07 4.48 Capital work-in-progress 5201.20 6948.80 8477.54 10003.49 a) Sub Total Fixed Assets 63824.90 67574.10 72740.50 77769.01 b) Non Current Investments 1120.10 1045.10 1118.26 1185.35 c) Long Term loans and advances 2872.70 3205.50 3558.11 3842.75 d) Other non-current assets 2549.10 2450.80 2671.37 2858.37 1. Sub Total Non Current Assets 70366.80 74275.50 80088.24 85655.48 Current Assets Current Investment 15438.30 16839.40 18137.96 19480.17 Inventories 9839.30 9339.40 10460.13 11610.74 Trade receivables 2133.70 2315.10 2616.06 2929.99 Cash and Bank Balances 22537.20 23410.90 25049.66 27053.64 Short-terms loans & advances 2489.80 2894.10 3299.27 3728.18 Other current assets 325.70 571.50 731.52 892.45 2. Sub Total - Current Assets 52764.00 55370.40 60294.61 65695.18 Total Assets (1+2) 123130.80 129645.90 140382.85 151350.66
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) CY12A CY13A CY14E CY15E Description 12m 12m 12m 12m Net Sales 97303.00 91603.50 102595.92 112855.51 Other Income 3488.70 3936.20 4251.10 4463.65 Total Income 100791.70 95539.70 106847.02 117319.16 Expenditure -75364.60-75095.20-84128.65-91638.68 Operating Profit 25427.10 20444.50 22718.36 25680.49 Interest -756.60-650.80-585.72-620.86 Gross profit 24670.50 19793.70 22132.64 25059.62 Depreciation -5652.20-4900.70-5096.73-5351.56 Exceptional Items 0.00 248.20 0.00 0.00 Profit Before Tax 19018.30 15141.20 17035.91 19708.06 Tax -6047.70-2195.50-2214.67-2956.21 Net Profit 12970.60 12945.70 14821.24 16751.85 Equity capital 3084.40 3091.70 3092.50 3092.50 Reserves 84966.20 91763.70 102775.34 114080.63 Face value 2.00 2.00 2.00 2.00 EPS 8.41 8.37 9.59 10.83 Quarterly Profit & Loss Statement for the period of 30 th Sep, 2013 to 30 th June, 2014E Value(Rs. mn) 30-Sep-13 31-Dec-13 31-Mar-14 30-Jun-14E Description 3m 3m 3m 3m Net sales 20174.50 22093.80 26493.20 24903.61 Other income 814.90 882.40 1318.90 1068.31 Total Income 20989.40 22976.20 27812.10 25971.92 Expenditure -17495.90-19023.60-20621.70-20296.44 Operating profit 3493.50 3952.60 7190.40 5675.48 Interest -178.30-169.30-161.00-148.12 Gross profit 3315.20 3783.30 7029.40 5527.36 Depreciation -1245.60-1227.80-1197.40-1245.30 Exceptional Items 248.20 0.00 0.00 0.00 Profit Before Tax 2317.80 2555.50 5832.00 4282.06 Tax -658.10 609.50-631.90-475.31 Net Profit 1659.70 3165.00 5200.10 3806.75 Equity capital 3089.80 3091.70 3092.50 3092.50 Face value 2.00 2.00 2.00 2.00 EPS 1.07 2.05 3.36 2.46
Ratio Analysis Particulars CY12A CY13A CY14E CY15E EPS (Rs.) 8.41 8.37 9.59 10.83 EBITDA Margin (%) 26.13% 22.32% 22.14% 22.76% PBT Margin (%) 19.55% 16.53% 16.60% 17.46% PAT Margin (%) 13.33% 14.13% 14.45% 14.84% P/E Ratio (x) 24.97 25.08 21.91 19.38 ROE (%) 14.73% 13.65% 14.00% 14.30% ROCE (%) 35.16% 26.64% 26.21% 26.43% EV/EBITDA (x) 11.86 14.75 13.20 11.60 Book Value (Rs.) 57.09 61.36 68.47 75.78 P/BV 3.68 3.42 3.07 2.77 Charts
Outlook and Conclusion At the current market price of Rs.210.00, the stock P/E ratio is at 21.91 x CY14E and 19.38 x CY15E respectively. Earning per share (EPS) of the company for the earnings for CY14E and CY15E is seen at Rs.9.59 and Rs.10.83 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 5% and 9% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 13.20 x for CY14E and 11.60 x for CY15E. Price to Book Value of the stock is expected to be at 3.07 x and 2.77 x respectively for CY14E and CY15E. We recommend BUY in this particular scrip with a target price of Rs.235.00 for Medium to Long term investment. Industry Overview India's potential in infrastructure is vast and cement plays a vital role in the growth and development of the nation. India is the second largest producer of cement in the world. The cement industry has been expanding on the back of increasing infrastructure activities and demand from housing sector over the past many years. India's cement sector had clocked a 5.6 per cent growth in 2012 13 and projects a growth of 5 6 per cent in the next fiscal, which would be supported by an expected increase in demand from the rural sector and tier II and tier III cities, as per India Ratings and Research report. An investment allowance for infrastructure projects of Rs 100 crore (US$ 16.05 million) and above has also been announced by the Government. In addition, cement production in India is expected to touch 407 million tonnes (MT) by 2020. Market Size Cement consumption in India is expected to rise by 8 9 per cent over the next year, taking the estimated cement consumption in 2013 14 to about 280 285 MT, from around 260 MT in the 2012 13 fiscal, as per the Cement Manufacturers Association (CMA). The cement industry may continue to witness a steady market for the better half of the year with fresh capacity of 20 MT going on stream in 2014, taking the industry capacity to 370 MT. The Indian cement sector is expected to witness positive growth in coming years, with demand set to increase at compound annual growth rate (CAGR) of more than 8 per cent during 2013 14 to 2015 16.
The cement and gypsum products sector in India has attracted foreign direct investments (FDI) worth US$ 2,879.95 million between April 2000 to November 2013, according to the Department of Industrial Policy and Promotion (DIPP). Investments Bhutan's Dungsam Cement Corporation Ltd has made a foray into the Northeastern market. The company is selling cement under the brand name of Dragon Cement. ACC has inaugurated a blended cement plant at Padubidri in Udupi district in Karnataka. The new facility has a capacity of 30,000 tonnes per month and will cater to the cement requirements in coastal Karnataka and Kerala. UltraTech has received the green signal from the Competition Commission of India (CCI) for its US$ 605 million agreement with Jaypee Cement Corporation to purchase its Gujarat-based businesses. Ambuja Cement has launched its first fully automatic 1 MT capacity terminal in Mangalore, Karnataka. Through this new facility all States along the west coast are now covered by Ambuja Bulk Cement Terminals (BCTs). UltraTech Cement, an Aditya Birla group company, has announced plans to set up two cement plants entailing investments of over Rs 5,000 crore (US$ 802.57 million). UltraTech Cement's plant and 75 megawatt (MW) captive power plant, with an investment of Rs 2,500 crore (US$ 401.28 million), have received approval from the Expert Appraisal Committee (EAC), under the Ministry of Environment. The cement plant in the Karur and Dindigul districts of Tamil Nadu will be spread over 136.23 hectares (ha). The CCI has approved the proposed acquisition of cement plants of Jaypee Cement Corporation Ltd, comprising an integrated cement unit at Sewagram and grinding unit at Wanakbori in Gujarat by Ultratech Cement Ltd. Government Initiatives The housing segment accounts for a major portion of the total domestic demand for cement in India. The Government of India (GoI) is strongly focused on infrastructure development to boost economic growth and plans to increase investment in infrastructure to US$ 1 trillion in the 12th Five Year Plan (2012 17). During the Plan, the industry is estimated to add a capacity of 150 MT.
An EAC under the Ministry of Environment, GoI, has given its approval to India Cements to double its capacity and set up a 40 megawatt (MW) power plant at one of its facilities in Tamil Nadu at a cost of Rs 810 crore (US$ 130.01 million). The proposed expansion project will come up at Dalavoi in Ariyalur district. Giving impetus to the market, the Goa State Pollution Control Board (GSPCB) has signed a memorandum of understanding (MoU) with Vasavdatta Cement, a company with its plant in Karnataka. The firm would use the plastic waste collected by the state agencies and village panchayats from Goa as fuel for its manufacturing plant. Road Ahead India has the capacity to become the world's third largest construction market by 2025 and a US$ 1 trillion market. The focus of the government on strengthening infrastructure, promotion of low-cost affordable housing, etc, is expected to drive cement demand. With the ever-increasing industrial activities, real estate, construction and infrastructure, in addition to the onset of various Special Economic Zones (SEZs) being developed across the country, there is a continuous demand for cement. Moreover, major cement manufacturers in India are also increasingly using alternate fuels, especially bioenergy, to fire their kilns. The step will not only help to reduce production costs of cement companies, but is also proving effective in reducing emissions. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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