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Motilal Oswal
Ambuja Cements (Neutral)
CMP: ₹227.15
Target: ₹206
Ambuja Cements is an India-based holding company, which is engaged in the manufacture of clinkers and cement. The company operates through cement and cement-related products. The company has a range of products for the business to business and retail markets.
We have analysed Ambuja Cements’ CY18 annual report. The infrastructure and the government’s ‘Housing for All’ initiative led to the cement industry growing 9 per cent in CY18.
But, Ambuja Cement witnessed its profitability getting hurt due to increased raw material and fuel prices. As a result of the cost push, cement EBITDA/t declined 6 per cent y-o-y to ₹781/tonne.
Cash flow from operations before taxes and working capital changes declined by 6 per cent to ₹1,810 crore in CY18.
Direct tax paid (net of refunds) increased by ₹310 crore over CY17-18.
Also, an increase of ₹592 crore in working capital versus a decrease of ₹230 crore in the previous year impacted the cash flow. As a result, cash flow from operations after working capital and taxes declined 68 per cent to ₹596 crore in CY18. We value ACEM at 10x March 2020 EV/EBITDA and its stake in ACC at 20 per cent discount to market value (holding company discount) to arrive at a target price of ₹206. Maintain Neutral.
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