Sharp rise in overheads; faces greater cost pressure than peers
Ambuja Cement?s Q1CY13 recurring profit after tax came in 25% below expectations primarily on a sharp increase in overheads and marginally weaker realisation. Ambuja has been facing higher cost pressures when compared to its peers and has consistently delivered lower Ebitda/tonne compared to Ultratech over the past few quarters, putting its premium valuation at risk. Maintain Hold with a price target of R207.
Weak results; recurring PAT declines 37% y-o-y: Ambuja reported weaker than expected results with standalone recurring PAT 25% below our estimates at R3.1bn (-37% y-o-y, +31% q-o-q). The main reason for the miss was a 2% lower-than-expected realisation and a 10% higher-than-expected overheads. Reported PAT was higher at R4.9bn on account of (i) R1.2bn tax credit relating to earlier years; (ii) R291m recognition of Cenvat credit relating to previous years; and (iii) R278m write back of interest on income tax relating to previous years.
Volumes decline 4% y-o-y; Realisations decline 2% q-o-q: Cement sales at 5.8m tonne were marginally below estimates and declined 4% year-on-year. Realisation was 2% below expectation at R4,388/tonne (+1% y-o-y, -2% q-o-q). Consequently, net revenues for the quarter came in 2% below estimates at R25.4bn (-3% y-o-y, +10% q-o-q). Ebitda was 23% below our estimate and declined 31% y-o-y to R5.1bn. Ebitda/tonne was 28% below estimate at R882/tonne. Operating costs increased 8% y-o-y in absolute terms but on per tonne basis were 12% y-o-y higher .
Ebitda/tonne of R882; impacted by higher overheads and weaker realisation: The big surprise on the cost side was the sharp increase in other expenses, which increased 15% y-o-y on an absolute basis and 20% y-o-y on a per tonne basis. While part of the increase was expected on account of the new ?Technical and services fee? agreement becoming effective from Q1CY13, the increase, was more than anticipated. Power & fuel costs per tonne moderated both y-o-y and q-o-q to R990/tonne due to substantial clinker inventory draw down in the quarter.
Valuation/risks:We have revised our estimates to incorporate the changes to cement realisation & volume estimates, and factor in the one-time provision. We continue to maintain our Hold on Ambuja and value the stock at 30% premium to the replacement cost of $140/tn to arrive at our target price of R207 (R216 earlier).