Ambuja ru1 qcy2010-230410

1

1QCY2010 Result Update I Cement

April 23, 2010

Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539

Investment Period -

Stock Info

Sector Cement

Market Cap (Rs cr) 18,298

Beta 0.6

52 WK High / Low 124/74

Avg. Daily Volume 684056

Face Value (Rs) 2

BSE Sensex 17,694

Nifty 5,304

Reuters Code ABUJ.BO

Bloomberg Code ACEM@IN

Shareholding Pattern (%)

Promoters 46.4

MF/Banks/Indian FIs 17.7

FII/NRIs/OCBs 27.3

Indian Public 8.6

Abs. (%) 3m 1yr 3yr

Sensex 4.9 58.9 27.0

Ambuja 13.8 45.5 4.4

Ambuja Cements (Ambuja) posted 7.8% yoy growth in Top-line for 1QCY2010 to Rs1,990cr, which was in line with our estimates and aided by increase in despatches and better realizations. While the company’s despatches during the quarter grew 4.3% yoy, realizations were higher by 3.3% yoy. OPM grew 328bp yoy to 32.3% primarily on the back of the fall in energy costs due to lower cost of imported coal and reduced external clinker purchases. The company’s power and fuel costs fell by 10.9% yoy during the quarter. On the Bottom-line front, the company clocked a robust 38.3% yoy growth in Net Profit to Rs462cr, primarily on account of healthy operating performance. We have revised our EPS estimate for CY2010E upwards from Rs6.3 to Rs6.8. The stock trades at an EV/EBITDA of 8.8x and EV/tonne of US $116/tonne on CY2011E estimates. We maintain our Neutral recommendation on the stock. Bottom-line up 38.3% aided by strong operating performance: Ambuja’s net sales grew by 7.8% yoy in 1QCY2010 to Rs1,990cr (Rs1,846cr) aided by a 4.4% yoy increase in sales volume and 3.3% yoy increase in realizations. OPM stood at 32.3% (29.0%), up by 328bp yoy. The installation of new clinker capacity in 1QCY2010 resulted in lower purchase of clinker from the market. However, freight costs were up by 18.8% yoy on account of the hike in prices of diesel and constraints in rake availability. Net Profit was up 38.3% yoy to Rs462cr (Rs334cr) primarily due to superior operating performance. Outlook and Valuation

On the valuation front, the stock trades at an EV/EBITDA of 8.8x and at an EV/tonne of US $116/tonne, according to its CY2011E estimates. We have arrived at a Fair Value of Rs119 (Rs101) for Ambuja by valuing its Cement business at an average Target EV/EBITDA of 8x and Target EV/Tonne of US $115. We remain Neutral on the stock.

Key Financials (Standalone) Y/E Dec (Rs cr) CY2008 CY2009 CY2010E CY2011E

Net Sales 6,168 7,041 6,913 7,623

% chg 9.5 14.2 (1.8) 10.3

Adj. Net Profit 1,094 1,218 1,033 1,134

% chg 11.3 11.4 (15.2) 9.8

OPM (%) 27.7 26.5 24.3 24.0

EPS (Rs) 9.2 8.0 6.8 7.4

P/E (x) 13.1 15.0 17.7 16.1

P/BV (x) 3.2 2.8 2.6 2.3

RoE (%) 21.2 20.1 15.3 15.3

RoCE (%) 24.7 23.3 18.0 17.9

EV/Sales (x) 2.9 2.1 2.3 2.1

EV/EBITDA (x) 10.4 8.1 9.5 8.8

Installed Cap. (mtpa) 22.0 23.5 25.0 27.0 S C A l R h

Ambuja Cements Performance Highlights

NEUTRAL CMP Rs120 Target Price -

Rupesh Sankhe Tel: 022 – 4040 3800 Ext: 319

E-mail: [email protected]

V Srinivasan Tel: 022 – 4040 3800 Ext: 330

E-mail: [email protected]

April 23, 2010 2

Ambuja Cements I 1QCY2010 Result Update

Exhibit 1: 1QCY2010 Performance (Standalone)

Y/E Dec (Rs cr) 1QCY10 1QCY09 % chg CY09 CY08 % chg

Net Sales 1,990 .2 1,845.6 7.8 7,076.9 6,220.3 13.8

Other Operating Income 28.6 17.0 67.9 104.6 61.4

Total Operating Income 2,018.8 1,862.7 8.4 7181.5 6281.7 14.3

Net Raw Material Costs 232.9 264.5 (12.0) 1,013.9 519.3 95.3

(% of Sales) 11.7 14.3 14.3 8.3

Power & Fuel 355.2 398.7 (10.9) 1,422.8 1,325.7 7.3

(% of Sales) 17.8 21.6 20.1 21.3

Staff Costs 77.2 57.7 33.7 272.8 266.1 2.5

(% of Sales) 3.9 3.1 3.9 4.3

Freight & Forwarding 412.2 347.0 18.8 1,347.4 1,250.0 7.8

(% of Sales) 20.7 18.8 19.0 20.1

Other Expenses 290.0 254.9 13.8 1,153.1 1,117.0 3.2

(% of Sales) 14.6 13.8 16.3 18.0

Total Expenditure 1,367.5 1,322.8 3.4 5,210.0 4,478.0 16.3

Operating Profit 651.3 539.8 20.6 1,971.5 1,803.7 9.3

OPM 32.3 29.0 27.5 28.7

Interest 10.8 5.2 106.1 22.4 32.1 (30.0)

Depreciation 76.7 68.6 11.8 297.0 259.8 14.3

Other Income 26.0 24.6 5.7 151.2 149.5 1.2

PBT (excl. Extr. Items) 589.7 490.5 20.2 1,803.3 1,661.4 8.5

Exceptional Items 20.0 - 308.3

PBT (incl. Extr. Items) 609.7 490.5 24.3 1,803.3 1,969.8 (8.5)

Provision for Taxation 147.6 156.5 (5.7) 584.9 567.6 3.1

(% of PBT) 24.2 31.9 32.4 28.8

Reported PAT 462.1 334.1 38.3 1,218.4 1,402.2 (13.1)

PATM 23.2 18.1 17.2 22.5

EPS (Rs) 3.0 2.2 36.4 8.0 9.2 (13.1) Source: Company, Angel Research

April 23, 2010 3


Operational Highlights The company’s per tonne cement realisation was up by 3.3% yoy during the quarter. The raw material costs per tonne were down by a substantial 15.7% on yoy basis on account of lower clinker purchases. The power costs per tonne too were down by 14.6% yoy on account of lower cost of imported coal. The company had entered into a contract in January to procure coal at US $75-80 per tonne for a period of six months. This is significantly lower than the current coal prices of US $95 per tonne (approx). However, the freight costs per tonne were up by 13.8% yoy on account of the increase in fuel costs and non-availability of rakes. The company’s operating profit per tonne during the quarter stood at Rs1,236, up 15.6% yoy. Net Profit per tonne was up by 32.6% yoy during the quarter to Rs877.

Exhibit 2: Per tonne analysis (Rs)

Particulars 1QCY10 4QCY09 1QCY09 yoy

chg (%) qoq

chg (%)

Realisation/tonne 3776.5 3389.8 3655.4 3.3 11.4

Raw Material Cost/tonne 441.8 505.8 523.8 (15.7) (12.6)

Power & Fuel Cost /tonne 674.0 762.3 789.5 (14.6) (11.6) Freight & Forwarding Cost/tonne

782.2 663.5 687.1 13.8 17.9

Operating Profit/tonne 1235.8 1032.2 1069.0 15.6 19.7

Depreciation/tonne 145.6 131.2 135.9 7.1 10.9

Net Profit/tonne 876.9 638.7 661.5 32.6 37.3 Source: Company, Angel Research Capacity Expansion to drive growth During the quarter, the company expanded its clinker capacity by 4.4mtpa by setting up clinker plants with a capacity of 2.2mtpa each at Bhatapara and Rauri. The company also commissioned the grinding units at Nalagarh and Dadri (with capacities of 1.5mtpa each) in 1QCY2010. The company is also adding 2mtpa of total grinding capacity at Bhatapara and Maratha. The company expects its overall capacity to touch 27mn tonnes by the end of CY2010 post these additions. The company, which commissioned a 33MW captive power at Bhatapara (33MW), is setting up another 30MW power plant at Ambuja Nagar which would take its overall captive power capacity beyond 400MW.

Exhibit 3: Capacity ramp-up (mtpa)

Source: Company, Angel Research

18.5

22.023.5

25.027.0

0

5

10

15

20

25

30

CY2007 CY2008 CY2009 CY2010E CY2011E

(mtp

a)

April 23, 2010 4


Outlook and Valuation All frontline states in the southern region like Andhra Pradesh, Tamil Nadu and Karnataka had been witnessing low demand in recent months. The industry had also witnessed aggressive inter-regional stock movement pending the expansions in the other regions, which exerted pressure on prices and profitability. Overall, the cement companies have been reporting strong sales volume on the back of new capacities coming on stream, which has enabled most of the cement manufacturers to increase their total cement production. Cement capacity addition in India during FY2010 stood at 27mn tonnes taking the total capacity of the sector to around 252mtpa at the end of FY2010. Going ahead, we expect the industry to add around 76mn tonnes of capacity through FY2010-12E. All-India demand is expected to remain robust, but accelerated capacity additions and stablisation of new capacities would exert pressure on prices after May 2010. We expect prices to remain firm till May 2010 on account of the demand arising from the Commonwealth Games, infrastructure spending and recovery in the Urban Housing Segment. We believe that Central, East and western-based players will perform better as compared to South-based players, on account of relatively balanced demand-supply dynamics and higher capacity utilisation. Currently, the capacity utilisation continues to remain higher, as the new capacities that came on stream were not fully stabilised. However, post stabilisation of the new capacities, we expect capacity utilisation levels to fall, and consequently estimate a negative impact on pricing and margins. Input costs are also hardening, which could exert further pressure on margins. Exhibit 4: Valuation based on EV/EBITDA multiple and Asset Replacement (CY2011E

Target EV/EBITDA (x) 8 Target EV/tonne (US $) 115

EV (Rs cr) 16,420 EV (Rs cr) 16,514

CPP* ( 443MW) 1,772

Market Cap (Rs cr) 17,610 Market Cap (Rs cr) 18,750

No. of shares (cr) 152.2 No. of shares (cr) 152.2

Fair Price (Rs) 116 Fair Price (Rs) 123 Source: Angel Research, Note:*Captive power Plant On the valuation front, the stock trades at an EV/EBITDA of 8.8x and at an EV/tonne of US $116/tone on CY2011E estimates. We have valued Ambuja Cements at an average of a Target EV/EBITDA of 8x and an EV/tonne of US $115/tonne to arrive at a revised Fair Value of Rs119 (Rs101 earlier). We maintain our Neutral recommendation on the stock.

April 23, 2010 5


Exhibit 5: One-year forward EV/Ebitda band

Source: Company, Angel Research Exhibit 6: One-year forward EV/tonne (US $) band

Source: Company, Angel Research

0

10,000

20,000

30,000

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

(Rs cr)

9x

3x

5x

7x

0

5,000

10,000

15,000

20,000

25,000

30,000

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

EV (R

s cr)

160

100

70

130

April 23, 2010 6


Profit & Loss Statement (Standalone) (Rs Crore) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E

Net Sales 6,275 5,631 6,168 7,041 6,913 7,623

Other operating income

Total operating income 6,275 5,631 6,168 7,041 6,913 7,623

% chg 138.6 (10.3) 9.5 14.2 (1.8) 10.3

Total Expenditure 4,135 3,586 4,461 5,174 5,234 5,797

Net Raw Materials 393 98 519 1,014 830 915

Other Mfg costs 1,240 1,020 1,326 1,423 1,517 1,688

Personnel 233 209 266 273 300 336

Other 2,269 1,960 2,350 2,464 2,587 2,858

EBITDA 2,139 2,045 1,707 1,867 1,679 1,826

% chg 196.5 (4.4) (16.5) 9.4 (10.1) 8.7

(% of Net Sales) 34.1 36.3 27.7 26.5 24.3 24.0

Depreciation& Amortisation 326 236 260 297 342 374

EBIT 1,813 1,809 1,447 1,570 1,338 1,452

% chg 244.6 (0.2) (20.0) 8.5 (14.8) 8.5

(% of Net Sales) 28.9 32.1 23.5 22.3 19.3 19.0

Interest & other Charges 113 76 32 22 15 19

Other Income 94 194 246 256 207 248

(% of PBT) 5.2 10.0 14.8 14.2 13.6 14.7

Share in profit of Associates

Recurring PBT 1,794 1,926 1,662 1,803 1,530 1,680

% chg 241.0 7.4 (13.7) 8.5 (15.2) 9.8

Extraordinary Expense/(Inc.) (48) (786) (308) - - -

PBT (reported) 1,842 2,712 1,970 1,803 1,530 1,680

Tax 338 943 568 585 497 546

(% of PBT) 18.4 34.8 28.8 32.4 32.5 32.5

PAT (reported) 1,503 1,769 1,402 1,218 1,033 1,134

ADJ. PAT 1,456 983 1,094 1,218 1,033 1,134

% chg 205.9 (32.5) 11.3 11.4 (15.2) 9.8

(% of Net Sales) 23.2 17.5 17.7 17.3 14.9 14.9

Basic EPS (Rs) 9.9 11.6 9.2 8.0 6.8 7.4

Fully Diluted EPS (Rs) 9.9 11.6 9.2 8.0 6.8 7.4

% chg 216.1 17.5 (20.6) (13.2) (15.2) 9.8

April 23, 2010 7


Balance Sheet (Standalone) (Rs Crore) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E SOURCES OF FUNDS

Equity Share Capital 304.5 304.9 304.5 304.7 304.7 304.7

Preference Capital - - - - - -

Reserves& Surplus 3,187 4,356 5,368 6,166 6,697 7,499

Shareholders Funds 3,492 4,661 5,673 6,471 7,001 7,804

Total Loans 865.4 330.4 288.7 165.7 215.7 265.7

Deferred Tax Liability 383.9 378.4 380.8 485.8 485.8 485.8

Total Liabilities 4,741 5,370 6,342 7,122 7,703 8,555

APPLICATION OF FUNDS

Gross Block 4,543 5,231 5,707 6,224 7,424 8,124

Less: Acc. Depreciation 2,053 2,271 2,514 2,784 3,126 3,499

Net Block 2,489 2,960 3,193 3,440 4,299 4,625

Capital Work-in-Progress 635 697 1,947 2,714 2,714 3,014

Goodwill - - - - - -

Investments 1,133 1,289 332 727 727 727

Current Assets 1,178 1,587 2,339 1,979 1,682 2,124

Cash 378.1 642.6 851.5 880.3 314.6 729.3

Loans & Advances 295.7 205.4 299.9 253.1 308.1 342.2

Other 504 739 1,188 846 1,059 1,053

Current liabilities 702 1,169 1,474 1,741 1,722 1,938

Net Current Assets 476.1 418.2 865.3 238.0 (39.7) 186.5

Mis. Exp. not written off 7.7 6.2 4.3 2.7 2.7 2.7

Total Assets 4,741 5,370 6,342 7,122 7,703 8,555

Cash Flow Statement (Standalone) (Rs Crore) Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E Profit before tax 1,842 2,712 1,970 1,803 1,530 1,681

Depreciation 326.1 236.3 259.8 297.0 341.5 373.7

Change in Working Capital (11.5) (78.1) (432.4) 544.3 (684.2) (24.5)

Less: Other income 94.1 193.5 246.4 255.8 207.4 247.7

Direct taxes paid 338.4 943.3 567.6 584.9 497.2 546.2

Cash Flow from Operations 1,724 1,734 983 1,804 483 1,236

(Inc)/ Decin Fixed Assets (1,275) (750) (1,726) (1,284) (1,200) (1,000)

(Inc)/ Dec in Investments (8.1) (155.8) 956.6 (394.6) - -

(Inc)/ Dec in loans and advances

Other income 94.1 193.5 246.4 255.8 207.4 247.7

Cash Flow from Investing (1,188) (713) (523) (1,423) (993) (752)

Issue of Equity 257.1 32.3 0.9 7.5 - -

Inc./(Dec.) in loans (262.1) (535.0) (41.8) (123.0) 50.0 50.0

Dividend Paid (Incl. Tax) 138.4 178.1 178.1 213.9 90.6 99.5

Others 113.2 75.9 32.1 22.4 15.1 19.3

Cash Flow from Financing (256.6) (756.6) (251.0) (351.8) (55.7) (68.8)

Inc./(Dec.) in Cash 278.8 264.5 208.9 28.8 (565.7) 414.7

Opening Cash balances 99.3 378.1 642.6 851.5 880.3 314.5

Closing Cash balances 378.1 642.6 851.5 880.3 314.6 729.3

April 23, 2010 8


Key Ratios Y/E December CY2006 CY2007 CY2008 CY2009 CY2010E CY2011E Valuation Ratio (x)

P/E (on FDEPS) 12.2 10.3 13.0 15.0 17.7 16.1

P/CEPS 10.0 9.1 11.0 12.1 13.3 12.1

P/BV 5.2 3.9 3.2 2.8 2.6 2.3

Dividend yield (%) 0.8 1.0 1.0 1.2 0.5 0.5

EV/Sales 3.0 3.2 2.9 2.1 2.3 2.1

EV/EBITDA 8.8 8.8 10.4 8.1 9.5 8.8

EV / Total Assets 4.0 3.4 2.8 2.1 2.1 1.9

Per Share Data (Rs)

EPS (Basic) 9.9 11.6 9.2 8.0 6.8 7.4

EPS (fully diluted) 9.9 11.6 9.2 8.0 6.8 7.4

Cash EPS 12.0 13.2 10.9 9.9 9.0 9.9

DPS 0.9 1.2 1.2 1.4 0.6 0.7

Book Value 22.9 30.6 37.3 42.5 46.0 51.2

Dupont Analysis (%)

EBIT margin 28.9 32.1 23.5 22.3 19.3 19.0

Tax retention ratio 81.6 65.2 71.2 67.6 67.5 67.5

Asset turnover (x) 1.5 1.2 1.2 1.2 1.0 1.0

ROIC (Post-tax) 35.9 26.0 20.2 18.1 13.2 12.9

Cost of Debt (Post Tax) 10.7 8.3 7.4 6.7 5.3 5.4

Leverage (x) 0.3 0.0 (0.1) (0.1) (0.1) (0.0)

Operating ROE 43.6 26.6 19.1 16.9 12.8 12.6

Returns (%)

ROCE (Pre-tax) 43.0 35.8 24.7 23.3 18.0 17.9

Angel ROIC (Pre-tax) 49.7 46.6 38.2 44.4 32.6 30.6

ROE 51.3 24.1 21.2 20.1 15.3 15.3

Turnover ratios (x)

Asset Turnover (Gross Block) 1.5 1.2 1.1 1.2 1.0 1.0

Inventory / Sales (days) 21.1 32.1 45.0 42.0 39.7 39.7

Receivables (days) 3.9 7.6 11.0 9.8 10.1 10.6

Payables (days) 48.5 95.2 108.1 113.4 120.7 115.2

Solvency ratios (x)

Net debt to equity 0.1 (0.1) (0.1) (0.1) (0.0) (0.1)

Net debt to EBITDA 0.2 (0.2) (0.3) (0.4) (0.1) (0.3)

Interest Coverage (EBIT / Int.) 16.0 23.8 45.1 70.0 88.6 75.4

April 23, 2010 9


Research Team Tel: 4040 3800 E-mail: [email protected] Website: www.angeltrade.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this

document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to

arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),

and should consult their own advisors to determine the merits and risks of such an investment.

Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are

inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company

may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as

opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,

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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement Ambuja Cements

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies’ Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946

Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059. Tel : (022) 3952 4568 / 4040 3800

Ambuja ru1 qcy2010-230410

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