EUR 120.00 For Business Accounts Only

MOSL: AMBUJA CEMENTS (Neutral)-Cost reduction offsets weaker realization

(ACEM IN, Mkt Cap USD5.7b, CMP INR206, TP INR220, 7% Upside, Neutral)

Capacity expansion to drive growth, but margin outlook weak
** Ambuja Cements' (ACEM) 4QCY19 result reflected normalized cost (after a sharp increase in 3Q) which offset weaker realization, resulting in sequentially flat EBITDA/ton of INR837. Volume grew 7% YoY.

** While volume growth is likely to improve from CY21 driven by new capacity, we expect margins to be weak due to expiry of fiscal incentives at its Maratha plant. We maintain our CY20/21 estimates and Neutral rating.

Beat on PAT led by tax write-back from switch to new tax regime
** The fourth quarter operating result was in line, with revenue/EBITDA/PBT up 10%/36%/48% YoY at INR31.4b/INR5.5b/INR4.4b.

** It has adopted a new tax rate of 25.17% and written back INR1.03b of deferred tax liability, resulting in a beat on PAT at INR4.5b (-15% YoY).

** While volume increased 7% YoY to 6.54mt, realization declined 4% QoQ to INR4,7945/t (+3% YoY)

** Unitary cost declined by 5% QoQ as expected to INR3,958/t (-1% YoY) resulting in flat EBITDA/t QoQ at INR837 (+27% YoY), despite lower realization.

** EBITDA margin came in at 17.5% (+3.35pp YoY, +0.71pp QoQ).