ICICI Direct has given Buy recommendation for Ambuja Cement with a target price of Rs. 365 in its research report issued on Apr 30, 2021

ICICI Direct’s research report on Ambuja Cement

At 96% capacity utilisation, the company operated almost at full capacity in Q1CY21. This, along with the low base of last year led to sales volume growth of 25.7% YoY to 7.24 MT (vs. I-direct estimate: 7.32 MT). Realisations were also up 1.9% YoY to Rs 5002/t (flat QoQ) vs. I-direct estimate of Rs 5025/t leading to revenue growth of 28.1% YoY. Absolute EBITDA increased 61.9% YoY to Rs 977 crore (vs. I-direct estimate: Rs 786 crore). On QoQ basis, EBITDA/t was up Rs 267/t to Rs 1,349/t (up 28.8% YoY) vs. I-direct estimate: Rs 1074/t. Key contributors to margin expansion (on QoQ basis) include 1) benefit of inventory adjustments (Rs 161/t), improvement in logistic efficiencies aided by master supply agreement (Rs 12/t) and other cost optimisation (Rs 83/t) that led to overall cost reduction of Rs 256/t on a QoQ basis. The greenfield project at Marwar Mundwa, Rajasthan (1.8 MT GU, 3 MT clinker) is expected to be commissioned by Q3CY21E. This would help improve sales volume by ~5 MT in the north and west regions. With ambition to reach 50 MT capacity in mid-term through significant de-bottlenecking opportunities, we expect the company to get back to industry leading growth trajectory once these new capacities comes on stream.

Outlook

we maintain BUY rating with unchanged TP of Rs 365 (implying a consolidated EV/t of $154 on expanded capacity and 14.5x CY22E EV/EBITDA).