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Centrum Broking
Ambuja Cements (Buy)
CMP: ₹218.75
Target: ₹230
Ambuja Cements is leading cement company known for its hassle-free, home building solutions and sustainable development operations.
Amubja Cements (ACEM) announced that it will be setting up a bigger kiln of 3.1 million tonne in Rajasthan, along with a 1.8 mt cement grinding capacity, by Q3CY20. To control operating costs, it will also add CPP and WHRS there to fully meet the plant’s electricity requirement.
We have marginally increased sales volume estimate for CY20 by 1 per cent on account of increased expansion plans, thus leading to a modest 1 per cent increase in CY20 Revenue/ EBITDA. We value ACEM on SOTP basis: the standalone ACEM at 11x its CY20 EBITDA and its 50 per cent holding in ACC at a 20 per cent discount to our target valuation of ACC leading to SOTP of ₹230.
We maintain our positive stance on the company, owing to ACEM getting aggressive to address long-term growth outlook, expectations of cost moderation from the material supply agreement (MSA) with its subsidiary ACC. Further, input cost inflation is expected to cool off with recent fall in coal and diesel prices. Sustenance of strong demand should aid cement price recovery. Thus, we maintain our buy’ stance on the stock.
Key downside risks: Demand slow down; further delay in cement price recovery; and higher than estimated fuel/diesel inflations.
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