Despite a 2% y-o-y volume growth vs. ~4% decline for the industry, Ambuja reported a higher fall in Op. Ebitda vs. peers for Dec’21 quarter as its cost increase was higher. While P&F cost increase is an industry wide trend, other expenses/t also increased for Ambuja led by higher ad/maintenance expenses. We expect Ambuja to outperform on volumes, but cut CY22-CY23 Ebitda estimate by 11-13% to reflect cost increases.
Retain Buy with a revised PT of Rs 425.Volumes in line: Ambuja’s Q4 volumes grew 2% y-o-y to 7.2mt, which was in line with JEFe, supported by capacity expansion in Rajasthan. Volume growth for Ambuja compared to peers was higher. Realisations miss: Blended realisations was flat sequentially. Despite strength in prices in key western and northern regions, realisation missed our estimate; we attribute it to market mix change as Ambuja had a sharp 10% decline in lead distance for the quarter.
Higher costs: Unit costs rose 14% y-o-y and 8% q-o-q, and were 3% higher than estimates. Cost of manufacture (material + P&F), rose sharply by 25-28% q-o-q and y-o-y, and was 7% higher than estimates. Other expenses per ton rose 17% y-o-y and 6% q-o-q on account of higher packing cost/marketing spends/ maintenance spends. Freight costs declined 8% q-o-q despite flat diesel costs driven by 10% reduction in lead distance.
Overall cost increase was 1-2% higher compared to all-India peers on q-o-q basis.Margin miss: Unit Op Ebitda declined 27% y-o-y and 30% q-o-q to Rs 793/t. Op Ebitda declined 26% y-o-y to Rs 5.7 bn which was 19% below. Depreciation and finance costs were ahead. Net earnings declined 36% y-o-y to Rs 3.2 bn which was 27% below. Demand outlook: Management remains optimistic on improving macro and government capex.
Long term demand for cement industry is on a strong footing driven by increasing population and urbanisation. Capex: Ambuja announced expansion plans in the eastern region with a 3.2mt brownfield clinker capacity Bhatapara, and cement grinding units with potential of 7mt total capacity in Farakka, Sankrail and Bhar. The total capex for these expansions is Rs 35 bn.
Cost trend: Key cost items like coal continue to increase in the international markets; while diesel price is stable in the domestic market, there is a likelihood of the same moving up post assembly polls. Management has not given outlook on likely cost increases for coming quarters.Ebitda cut: Factoring in the steep fuel inflation, we cut consol CY22-23e Ebitda by 11-13% and retain our Buy rating with a revised PT of Rs 425 (prev. Rs 470) based on 12.5x Dec-23E Ebitda.
