Emkay Global
Ambuja Cements (Buy)
Target: ₹283
CMP: ₹247.50
Ambuja Cements reported strong Q3 results with EBITDA growth of 54.7 per cent y-o-y. EBITDA at ₹680 crore was in line with our estimate of ₹660 crore. OPM stood at 23.9 per cent vs. estimate of 23.7 per cent. It declared an interim dividend of ₹17/share to better utilise the accumulated cash.
Key positive surprises are: volume growth of 7.8 per cent y-o-y vs. estimate of 6 per cent; 2) lower-than-estimated realisation decline of 3.5 per cent q-o-q vs. estimate of 4.8 per cent drop; and increase in inter-company purchases by 92.2 per cent in Q3/2.3x in 9M-CY20 which indicates progress toward achieving the benefits of the Master Supply Agreement (MSA).
The greenfield project (2.97mt clinker and 1.5mt grinding capacity) in Rajasthan is expected to get commissioned in Q2CY21. Effective capacity increase will be 4.5mt and it should help volume growth in the North region.Ambuja Cements should benefit from capacity addition in the North region due to higher clinker utilisation (90 per cent+ in the peak season) of its current plants and cost-saving strategies (WHRS and benefits from higher inter-company purchases). It is planning to set up waste heat recovery system of 19.5 MW each in Himachal Pradesh and Chhattisgarh, which will help reduce energy costs.