Ambuja Cement
High clinker purchase affects Q3CY2009 profitability
ACCUMULATE
CMP: Rs 89 Target Price: Rs 105
Ambuja Cement Limited (ACL's) Q3CY2009 pre exceptional net profit of Rs2.72bn (+8.9% yoy) is lower than our estimates (Rs2.91), primarily because of significant amount of clinker purchase from the market, which resulted in lower value addition. Revenues at Rs16.1bn grew by 16.2% yoy driven by increase in cement realisation by 10.5% yoy to Rs3929/tonne (ahead of our estimates of Rs3793/ton) and 5.1% yoy increase in volumes to 4.1 mn tons (below our estimates of 4.23mnt). However on account of higher clinker purchases from the market which resulted in lower value additions ACL's EBIDTA for the quarter grew by a mere 11.4% yoy. However this phenomenon is expected to reverse as ACL is expected to commission its Rauri (HP) and Bhatapara (Chhattisgarh) clinkerisation units by end of Q4CY2009. These units together will add 4.4 mtpa to ACL's clinker capacity. Pre exceptional net profit for Q3CY2009 stood at Rs2.72bn (+8.9% yoy) is lower than our estimates (Rs2.91) while, reported profit after exceptional items grew at 27.3% to Rs3.18bn. We maintain our earnings estimates for CY2009 and CY2010 as well as our Accumulate ratings on the stock with the price target of Rs105, valuing it at USD 110 for its CY2010 capacity.
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