Ambuja Cement Q3 Earnings Review

Ambuja Cement, one of the best cost-efficient cement companies in India, has released its results for the December quarter 2011 and reported a decent YoY performance. This was mainly on account of the pick-up in demand and higher realisations during the quarter. The revenue of the company during the quarter has improved by 29 per cent on a YoY basis to Rs 2,357 crore. The net profit has gone up by 17.15 per cent on a yearly basis to Rs 302 crore. This was largely on account of better realisations and lower interest outgo that is down by 52 per cent on a YoY basis to Rs 9.86 crore. The sales volume during the quarter has improved by 11 per cent to 5.52 million tonnes and the realisation has improved by 16 per cent to Rs 4,271 per tonne on a YoY basis.

The company closes its books on December 31. And if we look at the performance of the company in the last one year it is quite evident that the year has remained challenging for all the cement companies. The net sales of the company in CY11 grew by 15.2 per cent. This was due to lower sales volume which has grown by only 4.5 per cent on a YoY basis to 20.91 million tonnes. This muted growth in dispatch was largely because of the extended monsoon, weak economy, lower demand, and later due to higher interest rate which slowed down investments in the infrastructure sector. 

Also, due to higher input costs of power and fuel (up by 18 per cent YoY) and higher freight charges (up by 20 per cent YoY), the company reported muted bottomline numbers. The EBITDA for the year has grown by a mere 2.2 per cent and the net profit of the company in CY11 has declined by 2.8 per cent to Rs 1,229 crore. The company has posted decent Q3 numbers but its overall performance in CY2011 remained muted.

The first three quarters in CY11 remained subdued for the company. However, looking at the December quarter performance we expect it to post decent numbers in the March quarter 2012 mainly on account of the further pick-up in demand from the infrastructure and construction activity which also cyclically remains the best quarter for the cement sector. However, after a change in the pricing method by Coal India Ltd from useful heat value (UHV) to gross califoric value (GCV), the prices of coal will shoot up further and this will impact the margins of the company in the ongoing quarter. 

About the future outlook, the management has stated that the cost pressure on account of the rising cost of energy, logistics and raw material may continue to impact the margins. Also, the prices are expected to remain volatile in the short term due to the demand-supply gap. At the current market price of Rs 178.20 the scrip is trading at a P/E of 22x at an annualized EPS of Rs 8. The valuation looks a bit expensive but given the improvement expected in demand in the ongoing quarter and better realization due to firm prices in the ongoing quarter we believe that there is still some marginal upside in the stock from a short to medium perspective. We therefore recommend investors to accumulate the scrip during the dips.