ICICI Direct recommended hold rating on Ambuja Cement with a target price of Rs 245 in its research report dated May 02, 2019.
ICICI Direct's research report on Ambuja Cement
On a broad gauge, reported numbers of Ambuja Cement for Q1CY19, were disappointing on all major fronts except volumes and production efficiency. Volume growth remained in line with I-direct estimates at 6.37 MT but realisations disappointed, remaining flat YoY at ~Rs 4,600/t vs. our estimate of Rs 4,717/t. Revenues consequently remained moderately below I-direct estimates at Rs 2,928 crore. Premium products - “Roof special”, “Cool walls” and “Pura Sand” gaining traction, witnessing 14% growth YoY. On the profitability front, EBITDA margins dipped 189 bps to 15.8% below I-direct estimates of 17.2%, the drag mainly coming from lower realisations as production costs per tonne of Rs 3,869/t stay below our estimate of Rs 3,905/t. EBITDA contracted 8.8% to Rs 463 crore. Significantly higher other income arising out of dividend from its subsidiary ACC Ltd (Rs 132 crore) and income tax related reversals (Rs 51.58 crore), led PAT to grow 57% YoY to Rs 427 crore (vs. I-direct estimate of Rs 295 crore).
Outlook
However, the capacity constraints and current valuations imply a limited upside for Ambuja Cement. Consequently, we assign a HOLD rating on an SOTP basis (refer Exhibit 14) to Ambuja Cement with a revised target price of Rs 245, implying an upside of 10% and standalone valuation of 12x CY20E EV/EBITDA.
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