Hold Ambuja Cement; target of Rs 270: Edelweiss

Edelweiss' research report on Ambuja Cement

In our recent meeting with Ambuja Cement (ACEM), we gather that CY19 will be an important year given: 1) completion of 1.7mtpa greenfield clinker expansion in Rajasthan (last clinker addition was in CY10), 2) potential materialization of cost saving synergies with subsidiary ACC (versus initial guidance of USD120-150mn p.a. for ACC and ACEM combined) and 3) tangible benefits from captive coal block mining and increased usage of alternate fuels (from ~6% to >10%). In the near term, low base of H2CY16 (down 7.5% YoY) will aid robust volume growth in H2CY17 as ACEM remains optimistic on demand recovery post monsoons. With CY19 earnings estimates yet to be formally introduced and pending outcome of the Special Committee of Directors (SCD), formed to evaluate potential merger with ACC, we maintain ‘HOLD’ with a TP of INR270.

Outlook

We are yet to formally introduce CY19 earnings estimates and have assumed no synergy benefits in CY17/CY18E. With decision of the SCD formed to evaluate merger with ACC (a major event) being awaited and CMP factoring in near term positives (in our view), we maintain ‘HOLD/SU’ with TP of INR270 – valued at 14x FY19 EV/EBITDA and 20% holdco discount to our fair value estimate of ACC.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More