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4QCY2011 Result Update | Cement

February 13, 2012

Ambuja Cements
Performance Highlights
Y/E Dec. (` cr) Net Sales Operating profit OPM (%) Net profit 4QCY2011 2,329 450 19.1 302 3QCY2011 1,805 319 17.4 171 % chg qoq 29.0 40.8 165bp 76.3 4QCY2010 % chg yoy 1,788 360 19.7 258 30.2 24.9 (63)bp 17.2

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 26,061 0.8 182/117 282,077 2 17,773 5,390 ABUJ.BO ACEM@IN

`170 -

Source: Company, Angel Research

For 4QCY2011, Ambuja Cements (ACEM) reported 17.2% growth in its bottom line, which was higher than our estimates. Better-than-expected performance was on account of higher volumes. The companys realization also improved by 17.5% yoy and 11.8% qoq. However, the company faced substantial margin

pressure due to higher freight expenses and other costs, which negated the improvement in realization, resulting in a marginal 63bp decline in OPM to 19.1%. We maintain our Neutral view on the stock.
OPM at 19.1%, down 63bp yoy: During 4QCY2011, ACEMs net sales increased by 30.2% yoy to `2,329cr due to higher realization and growth in dispatches. Realization for the quarter improved by 17.5% yoy to `4,197/tonne and volumes grew by 10.8% yoy to 5.55mn tonnes. However, margins were under pressure because of surge in freight expenses and other costs, which negated the strong growth in realization. OPM for the quarter stood at 19.1%, down 63bp yoy. However, reported net profit was affected by `33cr on account of an exceptional item relating to change in accounting method for stock options. Outlook and valuation: We expect ACEM to register 13.7% and 13.5% yoy growth in its top line and bottom line, respectively, in CY2012E, aided by 9.9% growth in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$184 on current capacity (US$182 on CY2012E capacity), which we believe factors in positives such as favorable locational presence. Hence, we continue to remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 13.6 27.9 8.2

Abs. (%) Sensex ACEM

3m 3.4

1yr 0.2

3yr 84.5

4.2 45.8 131.6

Key financials (Standalone)


Y/E Dec. ( ` cr) Net sales % chg Adj. net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales EV/tonne (US$) Installed capacity (mtpa) EV/EBITDA (x)
Source: Company, Angel Research

CY2009 7,077 14.7 1,218 3.0 27.9 8.0 21.3 4.0 20.1 24.9 3.1 196 22 11.3

CY2010 7,390 4.4 1,237 1.5 26.4 8.1 21.1 3.6 17.9 20.8 3.2 191 25 12.0

CY2011 8,515 15.2 1,253 1.3 23.4 7.4 23.0 3.6 16.3 18.6 3.0 184 27 13.0

CY2012E 9,682 13.7 1,422 13.5 24.0 8.4 20.2 3.3 16.9 20.4 2.6 182 27 11.0

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com Sourabh Taparia 022-39357800 Ext 6872 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

Ambuja Cements | 4QCY2011 Result Update

Exhibit 1: 4QCY2011 performance


Y/E Dec. (` cr) Net sales Other operating income Total operating income Net raw-material costs (% of sales) Power & fuel (% of sales) Staff costs (% of sales) Freight & forwarding (% of sales) Other expenses (% of sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income Exceptional Inc./(Exp.) PBT Provision for taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

4QCY11 2,329 29 2358 336 14.4 471 20.2 125 5.4 507 21.8 468 20.1 1,908 450 19.1 10 124 65 (24) 357 54 15.3 302 13.0 2.0

3QCY11 1,805 29 1834 144 8.0 495 27.4 103 5.7 416 23.1 356 19.7 1,514 319 17.4 14 108 57 255 83 32.7 171 9.5 1.1

% chg qoq 29.0 28.6 132.8 (4.8) 21.5 21.9 31.6 26.0 40.8 165bp (28.5) 14.8 14.0 40.0 (34.7) 76.3 348bp 76.3

4QCY10 1,788 39 1827 165 9.2 446 24.9 77 4.3 408 22.8 371 20.7 1,467 360 19.7 21 109 38 268 10 3.8 258 14.4 1.7

% chg yoy 30.2 (26.5) 29.0 103.0 5.7 61.9 24.4 26.3 30.0 24.9 (63)bp (52.8) 14.0 72.2 33.0 432.0 17.2 (145)bp 17.2

CY2011 8,515 88 8,603 634 7.5 2,006 23.6 433 5.1 1,930 22.7 1,604 18.8 6,608 1,994 23.2 53 445 230 (24) 1,703 474 27.8 1,229 14.4 8.1

CY2010 7,390 127 7,518 542 7.3 1,697 23.0 344 4.7 1,610 21.8 1,374 18.6 5,567 1,951 26.0 49 387 120 27 1,662 398 24.0 1,264 17.1 8.3

% chg 15.2 (30.6) 14.4 17.0 18.2 26.1 19.9 16.8 18.7 2.2 (277)bp 8.1 15.0 91.6 2.5 19.0 (2.8) (267)bp (2.8)

Exhibit 2: Financial performance


2,500 2,000 1,564 1,500 1,788 2,207 2,173 1805 25.0 2329 30.0

(` cr)

(%)

1,000 500 0 3QCY10 4QCY10 Net Sales 1QCY11 2QCY11 3QCY11 4QCY11 407 152 258 348 171 302

20.0

15.0

Net Profit

OPM (RHS)

Source: Company, Angel Research

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Exhibit 3: 4QCY2011 Actual vs. Angel estimates


(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual 2,329 450 19.1 302

Estimates 2,204 467 20.8 286

Variation (%) 5.7 (3.7) (173)bp 5.7

Performance highlights
Higher realization and volumes aid top-line growth
During 4QCY2011, Ambuja posted 30.2% yoy growth in its net sales to `2,329cr, aided by 17.5% yoy growth in realization to `4,197 per tonne and 10.8% yoy growth in cement and clinker volumes to 5.55mn tonnes. Strong realization growth was on account of yoy improvement in cement prices. Volume growth was on the back of higher capacity as the company has commissioned two cement mills at the Bhatapara plant in Chhattisgarh and Maratha cement works in Maharashtra, which had increased the companys total grinding capacity to 27.3mn tonnes.

Higher freight expenses and other costs offset improvement in realization Despite strong improvement in realization, the company faced margin pressure during the quarter on account of increased freight expenses and other costs. The companys OPM for the quarter fell by 63bp yoy to 19.1%. However, on a sequential basis, OPM was higher by 165bp. Per tonne analysis
For 4QCY2011, ACEMs realization/tonne improved strongly by 17.5% yoy and 11.8% qoq to `4,197. Raw-material cost on per tonne basis declined by 6.8% yoy and 1.2% qoq to `275. Further, power and fuel expenses/tonne declined by 4.6% yoy and 17.5% qoq to `849. However, freight cost/tonne rose by 12.2% yoy to `914 due to higher petroleum products costs and railway freight charges. Other costs also surged on per tonne basis by 14.0% yoy and 14.0% qoq to `843 on account of increased packaging cost, legal and professional charges and stores and spares, among others. Operating profit/tonne stood at `914, up 42.6% yoy.

Exhibit 4: Per tonne analysis


(`) Realization/tonne Raw-Material cost/tonne Power and fuel cost/tonne Freight cost/tonne Other costs/tonne Operating profit/tonne
Source: Company, Angel Research

4QCY11 4,197 275 849 914 843 914

3QCY11 3,754 278 1,030 865 740 605

4QCY10 3,571 295 891 815 740 641

% chg (yoy) 17.5 (6.8) (4.6) 12.2 14.0 42.6

% chg (qoq) 11.8 (1.2) (17.5) 5.6 14.0 51.2

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Investment rationale
Most favorable capacity location among cement majors
ACEM has 81% of its total capacity located in states where supply is either less than demand or is in excess and can be economically sold to nearby supply-deficit states. Logically capacities in these states are expected to report relatively high utilization and margins.

Capacity addition to lead to volume growth


During the past two years, ACEM added ~5mtpa of grinding capacities at various locations to reach its current overall capacity of 27.3mtpa. Going ahead, we expect these capacity expansions to drive the companys volume growth.

New clinker capacities/CPPs to aid margin expansion


Stabilization of production at the company's new clinker plants with capacity of 2.2mtpa each at Bhatapara and Rauri has resulted in elimination of external high-cost clinker purchase. The company is also expected to record savings in energy cost, following the commissioning of 66MW of new captive power capacities in CY2010, which has taken its overall captive power capacity beyond 400MW.

Outlook and valuation


We expect ACEM to register 13.7% and 13.5% yoy growth in its top line and bottom line, respectively, in CY2012E, aided by 9.9% growth in volumes. At the CMP, the stock is trading at rich valuations of EV/tonne of US$184 on current capacity (US$182 on CY2012E capacity), which we believe factors in the positives such as favorable locational presence. Hence, we continue to remain Neutral on the stock.

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Exhibit 5: Key assumptions for CY2012E


Earlier estimates Installed capacity (mtpa) Utilization (%) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates 27 84 962 951 970

27 85 1,029 927 964

Exhibit 6: Change in estimates


Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

CY2012E Earlier 9,519 7,304 2,330 458 37 2,018 605 1,412 Revised 9,682 7,452 2,324 472 40 2,031 609 1,422 Var. (%) 1.7 2.0 (0.2) 3.0 7.3 0.7 0.7 0.7

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Exhibit 7: One-year forward EV/tonne


250,000 200,000

EV (` mn)

150,000 100,000 50,000 0

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

EV/tonne
Source: BSE, Company, Angel Research

$130

$150

$170

$190

Exhibit 8: Recommendation summary


Company ACC* Ambuja Cements* India Cements JK Lakshmi Cement Madras Cements Shree Cement UltraTech Reco. Neutral Neutral Neutral Buy Neutral Neutral Neutral CMP (`) 1,356 170 96 62 141 2,399 1,396 Tgt. price (`) 79 Upside (%) 27 FY2013E P/BV (x) 3.2 3.3 0.8 0.6 1.4 3.3 2.7 FY2013E P/E (x) 19.2 20.2 9.8 4.5 8.8 19.9 16.9 FY2011-13E EPS CAGR (%) 9.0 2.1 174.0 104.4 34.0 27.6 27.1 FY2013E RoCE (%) 21.7 20.4 7.4 10.5 13.1 15.8 17.5 FY2013E RoE (%) 17.6 16.9 8.5 13.3 17.0 17.7 17.1

Source: Company, Angel Research; Note: *December year end.

February 13, 2011

Oct-11

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Ambuja Cements | 4QCY2011 Result Update

Profit & loss statement (Standalone)


Y/E Dec. (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY07 5,631 (10.3) 3,586 398 1,020 209 1,960 2,045 (4.4) 36.3 236 1,809 (0.2) 32.1 76 194 10 1,926 7.4 (786) 2,712 943 34.8 1,769 1,257 (13.7) 22.3 8.2 8.2 (16.5) CY08 6,168 9.5 4,461 519 1,326 266 2,350 1,707 (16.5) 27.7 260 1,447 (20.0) 23.5 32 246 15 1,662 (13.7) (308) 1,970 568 28.8 1,402 1,183 (5.9) 19.2 7.8 7.8 (5.8) CY09 7,181 16.4 5,210 1,014 1,423 273 2,501 1,971 15.5 27.9 297 1,674 15.7 23.7 22 151 8 1,803 8.5 1,803 585 32.4 1,218 1,218 3.0 17.2 8.0 8.0 2.8 CY10 7,518 4.7 5,567 542 1,697 344 2,984 1,951 (1.0) 26.4 387 1,564 (6.6) 21.2 49 120 7 1,635 (9.3) (27) 1,662 398 24.0 1,264 1,237 1.5 16.7 8.1 8.1 0.8 CY11 8,603 14.4 6,608 634 2,006 433 3,535 1,994 2.2 23.4 445 1,549 (0.9) 18.2 53 230 13 1,727 5.6 24 1,703 474 27.8 1,229 1,253 1.3 14.7 7.4 7.4 (8.2) CY12E 9,777 13.6 7,452 716 2,210 485 4,041 2,324 16.5 24.0 472 1,853 19.6 19.1 40 218 11 2,031 17.6 2,031 609 30.0 1,422 1,422 13.5 14.7 8.4 8.4 13.5

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Balance sheet (Standalone)


Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 5,231 2,271 2,960 697 1,289 1,587 643 205 739 1,169 418 6 5,370 5,707 2,514 3,193 1,947 332 2,339 852 300 1,188 1,474 865 4 6,342 6,224 2,784 3,440 2,714 727 1,979 881 253 846 1,741 238 3 7,122 8,779 3,151 5,628 931 626 3,135 1,648 441 1,047 2,394 741 7,926 9,783 3,596 6,186 577 864 3,828 2,071 568 1,189 2,694 1,134 8,762 10,360 4,068 6,292 734 914 4,147 2,125 614 1,409 2,613 1,534 9,475 305 4,356 4,661 330 378 5,370 305 5,368 5,673 289 381 6,342 305 6,166 6,471 166 486 7,122 307 7,023 7,330 65 531 7,926 339 7,730 8,069 49 644 8,762 339 8,443 8,782 49 644 9,475 CY07 CY08 CY09 CY10 CY11 CY12E

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Cash flow statement (Standalone)


Y/E Dec. (` cr) Profit before tax Depreciation Change in WC Interest expenses Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY07 2,712 236 251 76 194 943 2,139 (750) (156) 194 (713) 32 (535) 583 76 (1,162) 265 378 643 CY08 1,970 260 (252) 32 246 568 1,196 (1,726) 957 246 (523) 1 (42) 390 32 (463) 209 643 852 CY09 297 698 22 151 585 (1,284) (395) 151 (1,528) 8 (123) 390 22 (528) 29 852 CY10 CY11E 387 257 49 120 398 (771) 101 120 (550) 55 (101) 425 49 (519) 767 445 30 53 230 474 (650) (238) 230 (658) 30 (16) 571 (111) (445) 423 CY12E 2,031 471 (346) 40 218 609 1,369 (734) (50) 218 (565) 660 89 (749) 54 2,071 2,125 1,803 1,662 1,703

2,085 1,836 1,526

881 1,648

881 1,648 2,071

February 13, 2011

Ambuja Cements | 4QCY2011 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) (0.1) (0.2) 23.8 (0.1) (0.3) 45.1 (0.1) (0.4) 74.7 (0.2) (0.8) 32.1 (0.3) (1.0) 29.4 (0.2) (0.9) 46.5 1.2 32 8 95 (4) 1.1 45 11 108 (6) 1.2 41 10 113 (16) 1.0 38 7 136 (38) 0.9 39 8 141 (39) 1.0 37 10 130 (29) 35.8 46.6 30.8 24.7 38.2 22.9 24.9 47.4 20.1 20.8 35.2 17.9 18.6 27.0 16.3 20.3 29.1 16.9 32.1 65.2 1.2 26.0 23.5 71.2 1.2 20.2 23.3 67.6 1.2 19.3 20.8 76.0 1.2 19.0 18.0 72.2 1.3 17.2 19.0 70.0 1.4 18.5 8.2 8.2 13.2 3.5 30.6 7.8 7.8 10.9 2.2 37.3 8.0 8.0 9.9 2.4 42.4 8.1 8.1 10.7 2.6 47.7 7.4 7.4 9.9 3.2 47.6 8.4 8.4 11.2 3.7 51.8 20.6 12.9 5.6 2.1 4.3 11.7 4.5 21.9 15.6 4.6 1.3 3.8 13.7 3.7 21.3 17.1 4.0 1.4 3.1 11.3 3.1 21.1 15.8 3.6 1.5 3.2 12.0 3.0 23.0 17.2 3.6 1.9 3.0 13.0 3.0 20.2 15.2 3.3 2.2 2.7 11.1 2.7 CY07 CY08 CY09 CY10 CY11E CY12E

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Ambuja Cements | 4QCY2011 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Ambuja Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

February 13, 2011

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