>AMBUJA CEMENT LIMITED (ICICI DIRECT)

Higher clinker purchase pulls down margin...

Ambuja Cement’s Q2CY09 results were below our estimates. The company’s reported and adjusted net profit declined by 43.7% and 3.1% YoY due to a sharp decline in margins. Higher clinker purchase pulled down the margin of the company. Ambuja is trading at a steep premium to its peers despite the fact that it does not have the best return ratios and best margins in the industry. Thus, we are maintaining our UNDERPERFORMER rating on the stock.

Highlights of the quarter
Net sales grew 18.2% YoY to Rs 1847.4 crore in Q2CY09, from Rs 1563.5 crore in Q2CY08. The EBITDA margin fell by 360 bps YoY to 26%. Thus, the EBITDA reported a growth of 3.8% YoY to Rs 479.7 crore. The reported net profit declined by 43.7% YoY as the company had an extraordinary income of Rs 314.2 crore in Q2CY08. The adjusted net profit has declined by 3.1% YoY to Rs 324.7 crore.

On a QoQ basis, net sales have remained flat due to a decline in volume on account of plant shutdown. The EBITDA margin fell by 210 bps. The reported and adjusted net profit has declined by 2.4% and 1%, respectively.

Valuations
At the CMP of Rs 95, Ambuja Cement is trading at 11.4x both its CY09E and CY10E earnings, respectively. On an EV/tonne basis, it is trading at $127/tonne and $110/tonne its CY09E and CY10E capacities, respectively. We maintain our UNDERPERFORMER rating on the stock with a target price of Rs 76 per share.

To see full report: AMBUJA CEMENT