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Centrum Broking
Ambuja Cements (Buy)
Target: ₹311
CMP: ₹264.70
Ambuja Cements Q4-CY20 revenue was in line with CBL estimates however, earnings were ahead of estimates driven by better than expected cost control. The revenues were 12 per cent higher y-o-y at ₹3,520 crore backed by 7 per cent volume gains to 7 million tonnes and 4.6 per cent higher realisation at ₹5,014/tonne.
Further, cost control measures (1 per cent y-o-y decline) helped EBITDA gain by 40 per cent to ₹770 crore and effectively PAT climbed up to ₹497 crore (₹350 crore in Q4-CY19). EBITDA margins improved to 21.8 per cent versus 17.5 per cent.
Pan-India presence (ex-South India), presence in retail segment (nearly 80 per cent), expected clinker capacity addition by Q2-CY21 and strong balance sheet will help Ambuja Cements equip for the expected growth momentum.
We have revised CY21/CY22 EBITDA (SA) to ₹2,950 crore/₹3,310 crore (earlier ₹2,690 crore/₹3,150 crore ) and value the stock on SOTP basis assigning 11.7x EV/EBITDA (SA) (earlier 10x) CY22 earnings and Ambuja Cements's 50 per cent holding in its subsidiary ACC. We arrive at a fair value of ₹311/share (revised from ₹261). At our TP the stock trades at a replacement cost of ₹1,150 crore CY22 capacities (SA).
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