ICICI Direct recommended hold rating on Ambuja Cement with a target price of Rs 211 in its research report dated July 27, 2020.
ICICI Direct's research report on Ambuja Cement
Ambuja Cements recorded a strong operating performance (standalone) with EBITDA margin expansion of 389 bps YoY to 27.3%. In spite of complete lockdown in April, volume decline of 28% YoY was more than offset by lower costs, which fell 30.6% YoY. Revenues for the quarter were at Rs 2177 crore (vs. I-direct estimate of Rs 2091 crore). Sales volumes declined 28% YoY to 4.19 MT (vs. I-direct estimate of 4.08 MT), realisations improved sharply by 6.0% QoQ to Rs 5195/t (vs. I-direct estimate of Rs 5,121/t) mainly due to a firm pricing environment. EBITDA margins expanded 389 bps YoY to 27.3% (far ahead of I-direct estimate of 18.9%). EBITDA expansion was driven by better realisations, enhanced focus on supply chain management, contract negotiations and fuel efficiencies that helped addressing the impact of lower volumes. Other income was also up 231% YoY to Rs 192 crore as it included dividend income of Rs 132 crore from ACC that led to net profit growth of 10% YoY to Rs 453 crore (vs. I-direct estimate: Rs 217 crore).
Outlook
Although the company has managed to offset the lower business through cost control, it would continue to remain a laggard in terms of gaining market share and growth in the long run. After the recent run-up in the stock price, we now downgrade the stock to HOLD with a revised target price of Rs 211 (implying a consolidated EV/t of $110, 9.5x CY21E EV/EBITDA).
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