Ambuja Cement - June 2010 Review

Ambuja Cements

June 2010 Review (Anand Rathi)

Stock Info

1. There has been a resurgence of its cost leadership status, expansion in high growth regions and its deleveraged balance sheets.
2. Its cement capacity addition increased to 25 tons from 22 tons and it is expected to be 27 tons by this 3rd quarter. This would entail 10% CAGR growth over the next 2 years.
3. Over 60% of its sales originate from high growth North, Central and East regions and the rest from the west. They had come up with a capacity (bulk terminal) in kerala which has made it an All India player.
4. It commissioned a 4.6 ton clinker plant (HP and Chattisgarh) taking the capacity to 16.7 m tons. This would save Rs. 200/ ton reinforcing Ambuja’s cost leadership status.
5. With no further capex the FCF would remain positive till CY11.
6. The net cash is expected to be Rs. 33 bn by CY 11.
7. It average EV/EBIDTA has been 7.5X over the ten year period.
8. PE 14X and EV/ton of USD 160 is being considered for the target price of 148
9. The volume growth over last 2 years was 6% for Ambuja due to capacity constraints also there was cement capacity and clinker capacity mismatch which resulted in sourcing clinker at a higher cost.
10. Company added 2 grinding units of 1.5 m tons each in Himachal Pradesh and Uttar Pradesh taking its cement capacity to 25 m tons. It is also adding 1 ton in Maharashtra and Chattisgarh increasing it capacity to 27 m ton.
11. Since its gearing would improve in the coming years it would be able to fund its future investment plans without put pressure on its balance sheet.