Ambuja Cements Rating: Buy- Q4CY20 was better than expected

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February 27, 2021 2:45 AM

Holcim group to continue investing in India; market share sustenance is key to re-rating; TP raised to Rs 330; ‘Buy’ maintained

India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in the country.India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in the country.

We hosted Neeraj Akhoury, CEO India, LafargeHolcim and MD & CEO of Ambuja Cement (ACEM), and Rajani Kesari, CFO LafargeHolcim India and CFO of ACEM, on the company’s first ever earnings call. Key takeaways include: (i) management expects industry to post robust 15-17% y-o-y demand growth in CY21, aided inter alia by low base; (ii) India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in India; (iii) achieved sustainable cost savings of ~Rs 200/te via cost rationalisation and in-house efficiency programme I Can; share of green power to increase to 38% by Dec’22 from the current 5%; and (iv) achieved synergies worth Rs 2.5 bn (>5% of PBT) in CY20 via MSA with ACC (this is likely to increase with incremental volumes and synergies).

We maintain our standalone CY21e-22E Ebitda and raise our TP to Rs 330 (from Rs 300) based on 10x FY23e EV/E on half-yearly rollover. Maintain Buy. Key risks: lower demand/prices.

Q4CY20 standalone Ebitda at Rs 7.7 bn (up 40% y-o-y) was higher than our estimates led by better than expected realisation, which remained broadly flat q-o-q (up 6% y-o-y) vs our estimate of 2% q-o-q decline. Accordingly, Ebitda/te increased 30% y-o-y to Rs 1,089/te. Total cost/te declined 1.5% y-o-y owing to various operational efficiencies, although it grew 1.7% q-o-q due to higher fuel/diesel costs. Variable cost/te was flat y-o-y with other expenses/te down 8% y-o-y. On a q-o-q basis, variable cost/te grew by Rs 95 owing to higher fuel/ diesel costs, while other expenses/te was flat despite higher volumes. PAT grew 41% y-o-y to Rs 5 bn.

Standalone revenues rose 14% y-o-y to Rs 34.7 bn (I-Sec: Rs 33.8 bn). Realisation increased 6% y-o-y (declined only 0.5% q-o-q ) to Rs 4,919/te led by higher prices in North and West regions. The share of special products increased to 12% of trade sales in Q4CY20. Volumes increased 8% y-o-y to highest-ever 7.05mnte (implying >90% utilisation) led by strong growth in East and North regions. Management expects increased government thrust on infrastructure, rural housing demand and improving industrial/commercial capex to drive robust 15-17% y-o-y industry growth in CY21.

India has been a ‘growth’ market for LafargeHolcim group, hence it would continue to invest in the country. Over 10mnte capacities would be commissioned over next 2-3 years between ACC and ACEM. Besides, ACEM is exploring expansions at Bhatapara in East and Maratha in West. The group expects to sustain its volume market share in India after losing some in the past decade.

3mnte clinkerisation at Marwar Mundwa, Rajasthan, along with 1.8mnte grinding unit is expected to be commissioned by Jun’21. This will not only strengthen the company’s market share in North and Gujarat, but also improve overall profitability as the profitability of this plant is expected to be better than the company average.

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