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Ambuja Cement – Strong operational improvement

April 23, 2010

Ambuja reported 1Q CY10 EBITDA at Rs6.2bn, up 19% YoY & 44% QoQ; results were in line with our expectations. Along with 1Q results, Ambuja announced commencement of commercial production for both the Bhatapara and Rauri expansions. Factoring 1Q trends and tad earlier-than-expected capacity expansions, we have lifted both EBITDA (+4%) and earnings (+10%) for CY10E.

In 1Q, Ambuja commissioned two clinker units of 2.2mtpa each at Bhatapara (Chhatisgarh) and Rauri (Himachal Pradesh) and two
grinding units of 1.5mtpa each at Dadri (Uttar Pradesh) and Nalagarh (Himachal Pradesh), which will take its total capacity to 25mtpa.

We expect Ambuja to post 23% YoY earnings growth in CY10E led primarily by strong cost savings from 1) in-sourcing of clinker, and 2) fixed-price contracts for imported coal that cover 1H CY10 requirements. Full impact of cost savings should reflect in 2Q CY10 results and we think the stock will underperform thereon, in-line with expected weakness in cement prices.

Ambuja Cement is expected to report an EPS of Rs 10.34 and Rs 11.85 for FY 11 and FY 12 according to Merrill.
HSBC expects EPS to be Rs 8 and Rs 9.5 for FY 11 and FY 12 respectively.

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