Ambuja Cement's Q4CY18 results (Outperformer) - All eyes on capacity expansion
Q4CY18 result highlights
- Adj PAT up 5% yoy to Rs2.95bn: on lower tax rate and marginal volume growth offset by lower realisations and high costs.
- Volume see marginal growth with 4.4% yoy growth: to 6.13mn tons led by high growth in premium product portfolio and market share gains in retail segment. Utilisations inched up to 83% (79% in 4Q17).
- Higher prices & share of premium products aid realisations: Realizations were +2.2% yoy at Rs4671/t. On a qoq basis, realisations were down (-Rs90/t) on pricing pressure in West and flat prices in East & Central (~45% of volumes; weak volume growth) offset by price improvement in North. Our channel checks suggest cement price hikes in Feb-19, notably across regions, which should support realizations going forward. Overall, revenues +6.8% yoy to Rs28.63bn.
- Cost/t +8.3% yoy: to Rs4012 led by higher raw material cost (+84% yoy), freight costs (+2.8% yoy; rise in lead distance & diesel prices offset by higher axle load benefit) P&F cost (5.4% yoy; inventory of higher priced petcoke) and packing costs (higher crude).
- EBITDA/t -24% yoy to Rs659: on low realisations and higher costs. Overall, EBITDA -20.4% yoy to Rs4.04bn.
- CY18 performance: adj. PAT +5.4% yoy to Rs12.45bn as revenues +8.6% (+5.8% vols; +2.6% realn). Costs/t were up 5% yoy (higher RM, freight and P&F costs). EBITDA/t fell 8% yoy to Rs778, driving 2.5% yoy drop in EBITDA to Rs18.91bn. Reported PAT +19% yoy to Rs14.9bn on Rs3.72bn tax write back.
Impact on financials: Standalone no change, Cons. CY19 EPS +6% to Rs10.4
Valuations & view:
Ambuja’s focus is on growth and expansion strategy to support strong demand growth across regions. Accordingly, it announced additional 1.4mtpa clinker capacity, 1.8mtpa grinding capacity and also the captive power plants and WHRS plants at the Marwa-Mundwa project (initially 1.7mtpa capacity; operational by 2HCY20; total 3.1mtpa), which should drive long term growth. Accordingly, earnings are likely to grow at 17.7% CAGR over CY18-20E. We believe consolidated valuations are attractive at 9.4x CY19E EV/EBITDA and US$98 on EV/t. Maintain Outperformer.
Ambuja Cement is a holding company. Co. is engaged in the manufacture and bulk export of cement and clinker products. Through its subsidiaries, Co. is engaged in investment holding in cement industries; finance services; the manufacture of cement; and property development and construction projects.
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