AMBUJA CEMENTS: Earnings miss as costs rise; cut estimates by 6-14%

Ambuja Cements 3QCY19 results brief synopsis:

–       Volumes decline but realizations improve: Volumes declined 5% YoY to 5.23mt in 3QCY19, as demand was impacted by heavy rain and floods in various states. Realizations increased 6% YoY, but were down 2% QoQ to INR4,887/t due to price roll back post May’19 in core markets. Revenues grew 1% YoY to INR26.3b, vs our estimate of INR25.3b.

–       EBITDA/t impacted by higher costs: Cost/t increased 2% YoY to INR4,180 (our estimate: INR3,963) due to higher other expenses/t and power & fuel cost/t. EBITDA/t came in at INR841 (+29% YoY). EBITDA grew 23% YoY to INR4.4b (our estimate: INR5.0b), translating into a margin of 16.7% (+3pp YoY, -6.7pp QoQ). PAT stood at INR2.3b (+31% YoY; our estimate: INR2.8b).

–       Key highlights from management presentation: (1) The board approved the amalgamation of Dirk India Pvt Ltd, a wholly owned subsidiary, with effect from 1st Jan’20, subject to regulatory approvals. (2) Premium product sales increased 17% YoY.

–       9MCY19 performance: Volumes declined 4% YoY, while sales/EBITDA/PAT were up 0%/8%/13% YoY. For 4QCY19, we expect volumes to decline 3% YoY, but sales/EBITDA/PAT to increase 2%/34%/35% YoY.

–       Valuation view: We cut our EBITDA estimate by 6% for CY19 to factor in higher reported costs. Consequently, our PAT growth estimate for the year is down by 6%. Alongside, we cut our EBITDA/PAT estimate by 12%/14% for CY20. The stock trades at 10x/9.5x CY19/20E EV/EBITDA. We value ACEM at 10x Jun’21E EBITDA, while the company’s stake in ACC is valued at a holding company discount of 10% to arrive at a TP of INR220. Maintain Neutral.