20 Jul , 2022 By : Kanchan Joshi
Shares of large-cap cement manufacturer Ambuja Cements Ltd. were flat in Wednesday's trade on the National Stock Exchange following a mixed earnings performance in the June quarter (Q2CY22). The company follows a January to December accounting year.
On a standalone basis, its Ebitda declined 29% year-on-year (y-o-y) and 13% sequentially, hit by higher energy and freight costs. Ebitda is short for earnings before interest, tax, depreciation and amortization. Power and fuel costs jumped 46% y-o-y in Q2CY22.
Sales volume rose 15% y-o-y to 7.39 million tonne (mt), aided by the ramp up of recently commissioned Marwar Mundwa plant. Premium cement contributed over 16% of total trade sales in the June quarter. Thanks to that, the company saw blended realisations improve sequentially and annually.
Ambuja Cements is setting up at grinding capacity of 1.5 mtpa (million tonne per annum) in Punjab, 3.2 mtpa clinker capacity in Chhattisgarh and 7 mtpa grinding capacity in eastern India. It is also setting up waste heat recovery systems at multiple plants. Once the ongoing expansions are complete, its total capacity will increase to 40 mt from 31.5 mt currently. Further, the company plans to achieve 50 mt capacity over the next few years via expansions and de-bottlenecking.
The expansions bode well for the company's long-term volume growth outlook, but in the near term, another trigger will decide the course of the stock.
"Given the ongoing acquisition process of Adani group and the open offer, we believe that the stock will remain rangebound closer to the offer price of Rs385," said analysts at Nirmal Bang Institutional Equities.
Also, given the company's performance in recent quarters and a better handle on costs by competitors, the stock's valuations seem expensive.
Analysts at Prabhudas Lilladher note that on the incremental basis, there is no meaningful scope for further cost reduction except savings in power cost due to increase in share of waste heat recovery plant. "As valuations remain unattractive with EV/EBITDA of 13.5x CY23e, better opportunities available in the space and strong outperformance of stock relative to its peers," the domestic brokerage house said in a report. EV is short for enterprise value.
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