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Global analysts bullish on Ambuja Cements post Q1 show; CLSA upgrades to buy

Citi has a buy call on Ambuja Cements with a target price at Rs 290 as Q2 EBITDA per tonne was at 7-year high but pricing trumped volumes.

July 26, 2019 / 12:51 PM IST
 
 
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Most brokerage houses were bullish on Ambuja Cements after June quarter earnings, with CLSA upgrading the stock to buy and also raising price target to Rs 265.

Strong cement pricing drove EBITDA per tonne to a multi-quarter high despite an 8 percent decline in volumes, the brokerage said.

The cement maker reported a 15 percent year-on-year growth in the June quarter (Q1) standalone profit net of dividend at Rs 412 crore, backed by strong operating income.

"Ambuja delivers a strong performance in the quarter backed by higher realisations and accelerated cost-saving actions. Despite higher fuel costs, the company did well by optimizing logistics costs, reducing raw material and fixed costs. Cement demand growth was muted in the quarter," Bimlendra Jha, Managing Director and CEO said.

Standalone revenue from operations fell 1.3 percent to Rs 2,978.3 crore compared to year-ago due to subdued volume growth, but the same met analyst expectations due to higher realisation.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 12 percent year-on-year to Rs 698 crore and margin expanded by 270bps YoY to 24 percent in the quarter ended June 2019.

The stock was quoting at Rs 212.50, down Rs 2.25, or 1.05 percent on the BSE at 1136 hours IST.

Here is what brokerages say about Ambuja Cements after June quarter earnings:

Brokerage: Citi | Rating: Buy | Target: Rs 290 | Return: 35%

Citi has a buy call on Ambuja Cements with a target price at Rs 290 as Q2 EBITDA per tonne was at 7-year high but pricing trumped volumes.

Pricing pullback may be temporary and volumes should improve post monsoon. Strong EBITDA per tonne in Q2 set a high base for second half of 2019.

Any growth announcement would be an upside trigger.

Brokerage: CLSA | Rating: Upgraded to buy | Target: Raised to Rs 265 | Return: 23%

The global brokerage upgraded stock to buy from outperform and also raised price target to Rs 265 from Rs 250 per share as strong cement pricing drove EBITDA per tonne to a multi-quarter high despite an 8 percent decline in volumes.

It also raised CY19-21 EPS estimates by 1-4 percent to factor in strong results by Ambuja Cements.

Cost was broadly in-line with estimates, but power & fuel and freight costs were lower than estimates.

Regional mix should also help amid uncertainty in Andhra Pradesh.

Brokerage: Reliance Securities | Rating: Buy | Target: Raised Rs 250 | Return: 16%

Going forward, we expect ACEM’s operating performance to remain steady led by higher realisation, while soft volume may continue to remain a headwind for growth.

Likely commissioning of clinker unit in 2021 will be a catalyst for the stock, which will ease the concern of capacity constraints. Meanwhile, owing to its capacity constraints ACEM will find it rather challenging to drive volume in line with the industry in the event of any sharp improvement in demand scenario.

Increasing our EBITDA estimate by 10/9 percent for CY19/CY20 to factor in higher realisation, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs250 (from Rs242 earlier).

Brokerage: JM Financial | Rating: Buy | Target: Rs 250 | Return: 16%

Ambuja Cement Q2CY19 EBITDA exceeded expectations primarily on higher than expected realisations. Revenues declined marginally as realisation uptick was offset by decline in volumes. Realisations grew 11.3 percent sequentially (against expectations of 7 percent growth).

Operating cash flow improved on higher working capital expansion last year. Growth for Ambuja is contingent on the timely completion of expansion projects (1.8MTPA grinding and 3.1MTPA of clinker at Marwar Mundwa expected by Q3CY20) and sustainability of the cement prices. We maintained buy rating with a target price Rs 250 per share (March 20).

Brokerage: Nomura | Rating: Neutral | Target: Rs 240 | Return: 12%

While maintaining neutral call on the stock with a target price at Rs 240 per share, Japanese brokerage Nomura said Ambuja Cements' revenue was 7 percent below its estimates, but 1 percent ahead of consensus expectations.

EBITDA was 3 percent below its forecast, but 17 percent ahead of consensus estimates. Compared to ACC, volume decline for Ambuja was steep and similar to ACC, cement realisation moved up 12 percent QoQ.

Demand should pick up post monsoon, but more price cuts/discounts are likely over the next few months.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Moneycontrol News
first published: Jul 26, 2019 12:51 pm

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