Ambuja Cement's Q3CY18 results (Outperformer) - Strong volume momentum

Q3CY18 result highlights

• Adj PAT fell 22% yoy to Rs1.8bn: on absence of dividend from ACC (recorded in 2Q18), in line with our estimates (strong volumes offset costs).
• Volume see strong traction with 9.1% yoy growth: to 5.49mn tons (incl clinker) led by sustained demand uptick across IHB and infrastructure segment. Utilisations inched up to 74% (68% in 3Q17).
• Higher prices & share of premium products aid realisations: Realizations were +3% yoy at Rs4761/t. On a qoq basis, realisations improved (+Rs55/t) led by better prices in East & Central (~45% of volumes) as well as higher sales of premium products. Our channel checks suggest cement price hikes in Oct-18, notably in West & Central, which should support realizations going forward. Overall, revenues +13% yoy to Rs26.14bn.
• Cost/t +2.8% yoy: to Rs4109 led by higher freight costs (+10% yoy; rise in diesel prices) and packing costs (higher crude). We note that cost efficiencies have played out in P&F costs that declined both qoq (-2%) and yoy (-5%), while freight too declined on qoq basis by 3%.
• EBITDA/t +6% yoy to Rs652: on higher volumes and prices. Overall, EBITDA +16% yoy to Rs3.6bn.   

Key positives: Strong volumes, fall in P&F costs on both yoy / qoq basis

Key negatives: Higher freight costs

Impact on financials: Cut CY18 consol EPS by 2% to Rs7.8/9.8.

Valuations & view:

With the long awaited corporate restructuring of ACC-ACEM behind, management is now focussing on operations and growth strategy (strong volume growth seen over CY17-18). As the MSA agmt with ACC is executed and the commissioning of the captive coal block should drive further savings. Concurrently, it is looking to expand capacity via the Marwa-Mundwa project (first phase of 1.7mtpa to be operational by 2HCY20; total 3.1mtpa), which should drive long term growth. Accordingly earnings are likely to grow at 16% CAGR over CY17-19E. We believe consolidated valuations are attractive at 9.4x CY19E EV/EBITDA and US$96 on EV/t. Maintain Outperformer.