Ambuja Cements Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/07/27-07...KRChoksey Research Ambuja Cements Ltd.

Ambuja Cements Ltd.

RESULT UPDATE July 25, 2017

2 Page

Result Highlights:

•Total Sales stood at INR 32602 Mn as against our estimate of INR 32020 mn which was up by 12.4% Y-O-Y and 11.6% Q-O-Q. Volume growth stood at 5% Y-O-Y reaching 6.05 MT (est. 6.21 MT) as against 5.76 MT in Q2CY16 and 6.02 MT in Q1CY17. Realizations increased by 5.71% Y-O-Y and 10.67% Q-O-Q.

•EBIDTA stood at INR 6510 Mn which was up by 8.9% Y-O-Y and 65.2% Q-O-Q and EBIDTA margin stood at 19.9% as against 20.6% same quarter last year and 13.5% last quarter.

•PAT stood at INR 3922 Mn which was down by 13.2% Y-O-Y and up 59.1% Q-O-Q while PAT Margin stood at 12%. The net profit was down on Y-O-Y basis primarily on account of lower other income.

91-22-6696 5555 / 91-22-6691 9569 www.krchoksey.com

ANALYST Vaibhav Chowdhry, [email protected], 91-22-6696 5571 Kunal Shah, [email protected], 91-22-6696 5568

KRChoksey Research is also available on Bloomberg KRCS<GO>

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Ambuja Cements Ltd. Strong realization boosts operating performance ! CMP

INR 268 Target

INR 282 Potential Upside

5.2% Market Cap (INR Mn)

531,756 Recommendation

ACCUMULATE Sector

Cement

SHARE PRICE PERFORMANCE

Shares outs (Mn) 1986

EquityCap (INR Mn) 3971

Mkt Cap (INR Mn) 531756

52 Wk H/L (INR) 282/191

Volume Avg (3m K) 3470.1

Face Value (INR) 2

Bloomberg Code ACEM IN

MARKET DATA

SENSEX 32228

NIFTY 9965

MARKET INFO

Revenues in-line with estimates:

During Q2CY17, revenues for Ambuja Cements Ltd (ACEM) stood at INR 32602 mn as against our estimate of INR 32020 mn which was up by 12.4% Y-O-Y and 11.6% Q-O-Q. Cement sales volumes for ACEM stood at 6.05 MT as against our estimate of 6.21 MT and grew by 5% Y-O-Y and ~1% Q-O-Q. Realizations increased sharply with a growth of 5.71% Y-O-Y and 10.67% Q-O-Q.

The company derives 40%/35%/20% of its volumes from North/West/East respectively. We expect demand to remain healthy in North and East primarily on account of off-take in affordable housing projects and higher infrastructure spend by Government. We believe the company will be one of the key beneficiary on account of strong and recognized brand.

We expect the cement volumes for the company to grow from 21.47 MT in CY16 to 25.47 MT in CY18 translating into 8.92% CAGR while we estimate total revenues to surge by 13.03% from INR 105381.5 mn in CY16 to INR 134621.5 mn in CY18.

Robust realizations boosts EBITDA/ton: EBITDA during the quarter stood at INR 6510 mn; up by 8.9% Y-O-Y and 65.2% Q-O-Q. EBITDA/ton stood at INR 1012 as against INR 955 in Q2CY16 and INR 606 in Q1CY17. The significant rise observed sequentially in EBITDA/ton was primarily on account of strong realization growth. Going ahead, we expect the operating efficiencies for the company to remain healthy on account of stability in cement prices on the back of improved demand and higher operating leverage. We estimate capacity utilizations for ACEM to increase from 72.41% in CY16 to 85.91% in CY18. We expect EBITDA/ton for the company to surge from INR 734 in CY16 to INR 984 by CY18 and EBITDA to grow at 24.93% CAGR from INR 16826.9 mn to INR 26262.43 mn over CY16-CY18.

Higher efficiencies; surge in FCFF to lead to better return ratios: Currently, the net cash and cash equivalents for the company stands at INR 31429 mn. We expect the free cash flow generation for the company to surge significantly on account of improvement in operating efficiencies and minimal capex plans. Consequently, we reckon an enhancement in return ratios with ROE increasing from 5.09% in CY16 to 8.06% by CY18 and ROCE surging from 7.17% to 11.97% in the same period. We believe that efficient deployment of capital in capacity addition or in efficiency improvement measures will act as re-rating trigger for the company.

Particulars Jun 17 Mar 17 Dec 16

Promoters 63.11 63.11 63.11

FIIs 16.75 18.21 18.38

DIIs 11.48 10.69 10.6

Others 8.67 8 7.91

Total 100 100 100

SHARE HOLDING PATTERN (%)

Volume CAGR expected between CY16 and CY18

8.92%

Revenue CAGR expected between CY16 and CY18

13%

India Equity Institutional Research II Result Update - Q2CY17 II July 25, 2017

70

85

100

115

Jul-1

6

Se

p-1

6

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Jan

-17

Mar

-17

May

-17

Jul-1

7

Sensex Ambuja Cement

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Valuation and Outlook:

The company marginally outperformed on the volume front with a growth of 5% Y-O-Y as against expected industry growth of 3% Y-O-Y while the significant improvement sequentially in operating efficiencies was primarily on account of strong realization growth. Going ahead, we expect the volumes to grow by 8.92% over CY16-CY18E factoring in pick up in affordable housing and infrastructure development projects. Further, we expect EBITDA to grow at 24.93% CAGR surging from INR 16826.9 mn to INR 26262.4 mn over CY16-CY18. With expected net cash and cash equivalents of INR 42895.7 mn by CY18, the company trades at an EV/ton of $185 and EV/EBITDA of 14x on CY18 basis (standalone value). We value Ambuja Cement Ltd on SOTP methodology (EV/EBITDA of 14x and EV/ton of $180 for standalone business on CY18E; 20% Holding company discount in ACC stake on CY18E) and arrive at a target price of INR 282 which is an upside of 5.2% from CMP of INR 268. We believe efficient capital deployment in capacity addition or efficiency improvement measures in standalone business and turnaround in ACC’s performance will lead to re-rating of the stock. We have an ACCUMULATE rating for the stock.

Particulars (in INR) CY14 CY15 CY16 CY17E CY18E

Realization/ton 4474.36 4303.31 4266.60 4437.27 4614.76

COGS cost/ton 384.10 379.74 347.69 354.12 348.14

Employee cost/ton 262.56 270.79 276.53 281.65 282.02

Power and fuel cost/ton 1022.67 943.01 853.27 948.06 992.46

Transportation and Handling cost/ton 1101.08 1152.82 1151.77 1170.25 1162.67

Other Expenses/ton 863.75 896.23 903.64 864.97 845.58

EBITDA/ton 840.19 660.71 733.71 818.22 983.88

Particulars (INR Mn) CY14 CY15 CY16 CY17E CY18E

Revenues 112375.60 107639.60 105381.50 117981.73 134621.47

EBITDA 19284.40 15314.70 16826.90 20172.87 26262.43

PAT 14963.60 8075.60 9700.90 12490.72 16396.70

EPS 9.66 5.20 4.89 6.29 8.26

P/E (x) 23.69 39.07 42.21 42.45 30.40

EV/EBITDA (x) 16.05 17.38 22.88 24.57 18.55

Source: Company, KRChoksey Research


Key Financials

Operating metrics

Ambuja Cements Ltd.






Q2CY17 Result Snapshot Comments:

•Total Sales stood at INR 32602Mn as against our estimate of INR 32020 mn which was up by 12.4% Y-O-Y and 11.6% Q-O-Q. Volume

growth stood at 5% Y-O-Y reaching 6.05 MT (est. 6.21 MT) as against 5.76 MT in Q2CY16 and 6.02 MT in Q1CY17. Realizations

increased by 5.71% Y-O-Y and 10.67% Q-O-Q.

•EBIDTA stood at INR 6510Mn which was up by8.9%y-o-y and up 65.2% Q-O-Q and EBIDTA margin stood at 19.9% as against 20.6%

same quarter last year and 13.5% last quarter.

•PAT stood at INR 3922Mn which was down by 13.2% Y-O-Y and up 59.1% Q-O-Q while PAT Margin stood at 12%. The net profit was

down Y-O-Y primarily on account of lower other income.

•Going forward, we believe with the Government’s enhanced focus on rural and affordable housing coupled with infrastructure

development, we expect a sharp recovery in cement volumes from Q4CY17 onwards and we believe that the company is poised for

re-rating if it can sustain similar operating efficiencies.

Particulars (Mn) Q2CY17 Q1CY17 Q2CY16 Q-O-Q Y-O-Y

Total Sales 32602 29224 29001 11.6% 12.4%

Total Expenditure 26092 25283 23024 3.2% 13.3%

Cost of Raw Materials 2289 2354 2035 -2.8% 12.5%

Employee Cost 1697 1677 1569 1.2% 8.2%

Power and Fuel Costs 5647 5388 4675 4.8% 20.8%

Transportation costs 7375 7412 6605 -0.5% 11.7%

Other expenses 5096 4853 4616 5.0% 10.4%

Excise duty paid on sales 3990 3600 3524 10.8% 13.2%

PBIDT (Excl OI) 6510 3941 5978 65.2% 8.9%

EBITDA Margins (%) 19.97% 13.5% 20.6% 648bps -64bps

Depreciation 1439 1460 1507 -1.4% -4.5%

EBIT before Exceptional Item 5071 2481 4470 104.4% 13.4%

Exceptional Items 0 0 0 - -

Other Income 560 1019 1704 -45.1% -67.1%

EBIT 5631 3501 6175 60.9% -8.8%

Interest 165 377 212 -56.2% -22.1%

EBT 5466 3124 5963 75.0% -8.3%

Tax 1544 658 1444 134.6% 7.0%

PAT 3922 2465 4520 59.1% -13.2%

PAT Margin (%) 12.0% 8.4% 15.58% 359bps -355bps

EPS 1.98 1.24 2.28 59.1% -13.2%

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Ambuja Cements Ltd.





Standalone Financials

Balance Sheet (INR Mn) CY14 CY15 CY16 CY17E CY18E

Equity Share Capital 3099.50 3103.80 3971.30 3971.30 3971.30 Reserves 97933.80 99964.90 186764.30 193009.66 199568.34 Net worth 101033.30 103068.70 190735.60 196980.96 203539.64 Total loans 291.50 327.40 368.10 368.10 368.10 Capital Employed 107633 109358 196433 202820 209464 Net block 69172.80 65061.50 62986.70 58936.50 57746.74 Current Investments 20670.00 21192.30 10650.20 10650.20 10650.20 Inventories 8883.90 8954.50 9375.40 10348.60 11176.49 Sundry debtors 2279.80 2863.60 3000.80 3232.38 3688.26 Sundry creditors 6184.90 6798.20 8969.80 9898.66 10933.52 Cash and bank 24581.20 28483.90 14128.70 24345.32 32613.56 Total Current assets 59952.10 65486.00 41089.50 52593.45 62644.66 Total Current liabilities 31375.40 32260.90 36109.70 37176.46 39393.76 Capital Deployed 107633 109358 196433 202820 209464

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Profit & Loss (INR Mn) CY14 CY15 CY16 CY17E CY18E

Total Sales 112375.60 107639.60 105381.5 117981.73 134621.47 COGS 8507.90 8267.00 7464.9 8211.39 8868.30 Employee Expenses 5815.80 5895.20 5937.2 6530.92 7184.01 Power and fuel 22652.20 20529.40 18319.6 21983.52 25281.05 Transportation cost 24388.90 25096.80 24728.4 27135.80 29616.72 Other Expenses 19132.00 19510.90 19401.2 20056.89 21539.43 Excise duty 12594.40 13025.60 12703.3 13890.34 15869.51 EBITDA 19284.40 15314.70 16826.9 20172.87 26262.43 D&A 5095.30 6256.60 8501.3 5850.00 6189.76 Other income 4289.80 3581.90 5762.3 5000.00 5000.00 EBIT 18478.90 12640.00 14087.9 19322.87 25072.68 Interest Expense 644.80 917.90 714.8 680.00 600.00 PBT 17834.10 11722.10 13373.1 18642.87 24472.68 Tax 2870.50 3646.50 3672.2 6152.15 8075.98 Effective tax rate 16.10% 31.11% 27.46% 33.00% 33.00% PAT 14963.60 8075.60 9700.9 12490.72 16396.70

Cash Flow (INR Mn) CY14 CY15 CY16 CY17E CY18E

PAT 14963.60 8075.60 9700.90 12490.72 16396.70 Depreciation & Amortization 5095.30 6256.60 8501.30 5850.00 6189.76 (Incr)/Decr in Working Capital 147.80 227.90 357.70 -78.94 519.81 Cash Flow from Operating 16752.70 15528.10 14153.90 18941.78 23706.26 (Incr)/ Decr in Gross PP&E -8234.10 -6213.80 -3910.50 -1799.80 -5000.00 Cash Flow from Investing -4600.90 -829.20 -34026.00 -1799.80 -5000.00 (Decr)/Incr in Debt 0.00 35.90 141.30 0.00 0.00 Dividend -6173.00 -7443.50 -5511.10 -6245.36 -9838.02 Finance costs -318.30 -389.30 -359.20 -680.00 -600.00 Cash Flow from Financing -7171.40 -8968.90 -6822.60 -6925.36 -10438.02 Incr/(Decr) in Balance Sheet Cash 4980.40 5730.00 -26694.70 10216.62 8268.24 Cash and cash equivalents at the Start of the Year 39606.60 44587.00 50317.00 14128.70 24345.32 Cash and cash equivalents at the End of the Year 44587.00 50317.00 23622.30 24345.32 32613.56





Ambuja Cements Ltd.





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Ratio Analysis CY14 CY15 CY16 CY17E CY18E

EBITDA/ton 840.19 660.71 733.71 818.22 983.88

Volume (mn tons) 21.46 21.50 21.10 23.19 25.47

Growth (%)

Total Sales 8.15% -4.21% -2.10% 11.96% 14.10%

EBITDA 15.69% -20.59% 9.87% 19.88% 30.19%

PAT 15.59% -46.03% 20.13% 28.76% 31.27%

Profitability (%)

EBITDA Margin 17.16% 14.23% 15.97% 17.10% 19.51%

NPM 13.32% 7.50% 9.21% 10.59% 12.18%

Return ratios

ROE 14.81% 7.84% 5.09% 6.34% 8.06%

ROCE 17.17% 11.56% 7.17% 9.53% 11.97%

Per share data

EPS 9.66 5.20 4.89 6.29 8.26

BPS 65.19 66.41 96.05 99.20 102.50

Valuations (x)

P/E (x) 23.69 39.07 42.21 42.45 30.40

P/BV (x) 3.51 3.06 2.15 2.69 2.45

EV/EBITDA (x) 16.05 17.38 22.88 24.57 18.55

EV/Ton ($) 160.66 133.98 193.82 249.45 245.29

Net Debt/EBITDA -2.33 -3.22 -1.45 -1.72 -1.63

Net Debt/Equity -0.44 -0.48 -0.13 -0.18 -0.21

Interest Coverage 28.66 13.77 19.71 28.42 41.79


Ambuja Cements Ltd.





Analyst Certification

We, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Kunal Shah (BE), senior research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

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Ambuja Cements Ltd.


Ambuja Cements Ltd

Date CMP (INR) TP (INR) Recommendation

25-Jul-17 268 282 ACCUMULATE

02-May-17 246 248 HOLD

Rating Legend

Our Rating Upside

Buy More than 15%

Accumulate 5% - 15%

Hold 0 – 5%

Reduce -5% – 0

Sell Less than -5%

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Ambuja Cements Ltd. - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2017/07/27-07...KRChoksey Research Ambuja Cements Ltd.

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