Prabhudas Lilladher is bullish on Ambuja Cement has recommended buy rating on the stock with a target price of Rs 235 in its research report dated July 27, 2020.
Prabhudas Lilladher's research report on Ambuja Cement
Ambuja Cement (ACEM) delivered strong set of Q2CY20 earnings with 35%/30% beat on ours/consensus EBITDA estimates. Lower than expected costs drove the beat in earnings. Cement demand positively surprised us as well as the street with decline of 12% YoY in May (against street expectation/PLe of 40%/15% drop) and growth of 1% YoY in June (against street estimate/PLe of 15%/5% drop). Based on our channel checks, demand remained stable in July despite early monsoons and lockdowns. On prices front, we remain confident on sustainability of tight discipline given the demand uncertainty and delay in ongoing capacity expansions. Admittedly, cost would rise in absolute terms as some of the expenses like repairs & maintenance, advertisement (IPL in Q4CY20) and stores & spares would bounce back Q3CY20 onwards. However, higher volumes, elevated benefits of MSA, renegotiation of contracts and lower coal costs would outweigh the increase in fixed costs.
Outlook
Hence, we upgrade our EBITDA estimates for CY20/CY21 by 21%/11% to factor in higher margins. We reiterate BUY rating with revised TP of Rs235 (Earlier Rs210), EV/EBITDA of 10.5x CY21e.
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