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Systematix Research Report
Ambuja Cement Ltd. reported its Q2 FY24 numbers with revenue/Ebitda largely in line with our estimates but below consensus estimates. However, reported profit after tax was better than estimate owing to higher other income.
Revenues grew to Rs 39.7 billion (+8.0% YoY, -16.1% QoQ) led by 7% YoY growth in volume to 7 million meric tonne, lower than the industry average. Blended realisations improved 2% due to higher sales of premium products coupled with a focus on micro-market management.
Adhering to its stated ambition of becoming the lowest-cost producer, the company has successfully been able to implement its various cost reduction and optimisation initiatives.
This can be witnessed in the consistent reduction in power and fuel expenses/tonne (-36.3% YoY) and freight costs/tonne (-5.2% YoY).
Reaping the benefits of Ambuja and ACC synergies, the company has been able to do away with a lot of cost redundancies, bringing down the other expenses by 29.3% YoY.
As a result of all of this, the Ebitda margin saw a sharp expansion and stood at 19.5% in Q2 FY24 (8.3% in Q2 FY23). Blended Ebitda/tonne stood at Rs 1,018 from Rs 431 in Q2 FY23 (+136.1% YoY, -2.4% QoQ).
Ambuja Cement has maintained its guidance of doubling the combined capacity by FY28 (Including acquisition of Sanghi Cement) and to reduce cost/tonne by Rs400 to reach to Rs 1,500/ million tonne.
We keep our estimates and target price unchanged at Rs 517 based on SOTP valuation where we valued its core standalone business by enterprise value/Ebitda of 15 times on FY25E (Rs 440/share) and its stake in ACC by giving 30% holding discount which gives a value of Rs 77/share.
Due to the recent correction in valuation, we upgrade the stock to 'Buy' from 'Hold'.
Key downside risks:
Delays in capacity expansion, dampening demand due to lower capex and higher energy costs.
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