Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Q4CY19 result highlights

• Adj PAT +54% yoy to Rs4.55bn: was above estimates on lower tax (shifted to new tax regime) while operational performance was in-line.
• Volume increased 6.7% yoy: to 6.54mn tons led by pickup in demand in North and East, growing ahead of industry (mkt share gains).
• Realisations +2.7% yoy: to Rs4795/t due to sharp price hikes across regions in 1HCY19. This was further augmented by 14% yoy growth in premium products. Hence, revenue was up 9.5% yoy to Rs31.4bn. However, on a qoq basis realisations fell by Rs198/t (-4% qoq) as prices have corrected across regions from peak levels of 2QCY19 particularly in East where the fall has been sharpest.
• Cost/t decreased 1.4% yoy to Rs3958/t: largely led by lower P&F costs (-11.6% yoy,-10.1% qoq) on back lower petcoke prices, operational efficiencies and optimisation in supply chain. Further, freight costs fell 6.4% yoy (0.8% qoq) due to lower diesel prices. Cost savings were augmented by lower employee & other costs due to positive operating leverage. This was partially offset by higher RM costs/t (+9.4% yoy)
• EBITDA/t +27% yoy to Rs837 (stable qoq): on back of higher realisations and lower costs. Overall EBITDA +35.5% yoy to Rs5.47bn.
• CY19 adj PAT +20% yoy to Rs14.9bn: Revenue +3% yoy (volume -1% yoy; realisations +3.6% yoy), while cost/t +1.4% yoy driving EBITDA/t +14.6% yoy to Rs893. Hence, EBITDA +14% to Rs21.5bn.

Mgmt change: Ambuja has appointed Mr. Neeraj Akhoury as the new MD & CEO (earlier ACC’s MD) with current MD (Mr. Bimlendra Jha) resigning. ACC’s new MD & CEO would be Mr. Sridhar Balakrishnan (Chief Commercial officer at ACC since July 2018). We believe Mr. Akhoury being the earlier CEO of ACC and shift to Ambuja would likely aid the synergies between the two companies and help realise the anticipated benefits out of the MSA agreement (3-5% of PBT savings or Rs30-50/t savings).

Impact on financials: Cut consol CY20E EPS by 4% to Rs10.9. CY21E at Rs13

Valuations & view:

Ambuja’s presence in North and East has aided strong volume growth for the year. Further, costs have seen a declining trend with lower fuel prices and cost efficiencies (fixed costs in check). We believe sustained cost efficiencies and expansion (1.8mtpa to be commissioned by Dec-20) would drive 15% earnings CAGR over CY19-21E. Valuations at 9x/7x CY20E and CY21 EV/EBITDA and US$96 on EV/t (CY20) are attractive. Maintain our Outperformer rating on the stock.