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MOSL: AMBUJA CEMENTS (Neutral)-Profitability miss on account of lower realizations

Ambuja Cements: Profitability miss on account of lower realizations

(ACEM IN, Mkt Cap USD6.3b, CMP INR221, TP INR211, 4% Downside, Neutral)

• Volumes, realizations below estimates: Volumes increased 2.4% YoY to 6.37mt (below our estimate of 6.53mt) in 1QCY19. Realizations declined 1.6% QoQ to INR4,596/t (our estimate: INR4,761), led by weaker prices in the core markets. Revenue, thus, increased by only 2% YoY to INR29.3b (our estimate: INR31b).
• Profitability supported by lower costs: Cost/t declined 4% QoQ to INR3,869 (our estimate: INR3,955), led by lower freight cost/t and power & fuel cost/t. Thus, EBITDA/t increased 10% QoQ to INR727 (our estimate: INR806). EBITDA declined 9% YoY but was up 15% QoQ to INR4.63b (our estimate: INR5.26b), translating into a margin of 15.8% (-1.9pp YoY, +1.7pp QoQ). Exceptional items worth INR516m were booked during the quarter. Hence, adj. PAT stood at INR3.75b (+38% YoY; our estimate: INR3.0b), as against reported PAT of INR4.27b.
• Key highlights from management presentation: (1) The impact of huge increase in energy prices was partially mitigated by internal efficiencies and cost initiatives. (2) Freight and forwarding costs were lower YoY due to the successful implementation of cost-mitigating initiatives (outbound), such as renegotiation of contracts and network optimization. (3) Other expenses declined YoY due to lower SG&A expenses.