Brokerages recommend ‘sell’ on Ambuja Cements

MUMBAI: Brokerages have recommended investors to ‘sell’ Ambuja Cements following Q4 results which were below street estimates. It reported a 30 per cent fall in net profit to Rs 212 crore for the quarter ended December from Rs 302 crore in the corresponding quarter last fiscal.

Net sales stood at Rs 2,313 crore, down 0.6 per cent, from Rs 2,329 crore earlier,

EBIDTA was flat at Rs 450 crore against Rs 448 crore and margins remained at 19.46 per cent as against 19.46 per cent, year-on-year (YoY).

The net profit was below estimates after adjusting tax credit of the corresponding quarter. Rising cost of energy, logistics & RM impacted the margins.

Following are the brokerages’ views on the stock post the results:

Macquarie:

Macquarie has maintained underperform rating on Ambuja Cement. The brokerage feels margins for Ambuja Cements have peaked out and given the oversupply, it will be a struggle to even maintain them.

The brokerage has also raised concerns regarding sustainability of royalty payout to Holcim in future from the current 1 per cent, which can effectively take away potential profit growth.

Macquarie is of the view that Ambuja will continue to get de-rated and has set the price target at Rs 124, expecting 39 per cent downside.

CLSA:

The brokerage has cut its earning estimates by ~11 per cent over CY13-14 after moderating realisation assumptions and also accounting for higher royalty outlay.

It is of view that after a challenging 4Q, channel checks indicate that prices have started to move up underpinned by a pick-up in industry demand. It believes that worst is now behind and seasonally adjusted cement prices would move up in the medium term. It continues to rate Ambuja as outperformer, but has lowered its target price to Rs 218/share following earnings cut, valuing the stock at 16x CY14 earnings.

UltraTech and Shree Cement remain its best bets in the sector given their ahead of the curve expansions and lack of uncertainty around royalty.

Kotak Institutional Equities:

It has maintained a sell recommendation on the stock, but has increased the target price to Rs 190 from Rs 180 earlier. The brokerage is of the view demand environment with continued demand-supply imbalance and a watchful regulator will likely maintain volatility in cement prices.

According to the brokerage, Ambuja Cements trades at 9X one-year rolling forward EBITDA (long-term range of 6-9X) and 16X one-year rolling forward EPS. On capacity metrics, ACEM at US$214/ton (CY2013E capacity) trades at a 30 per cent premium to ACC, leaving little room for stock performance.

“We factor volumes of 23 mn tons in CY2013E (+8% yoy) implying an improvement in capacity utilization and realizations of Rs 4,798/ton in CY2013E yielding earnings of Rs12.9/share,” it says.

The stock was at Rs 189.90, down 5.07 per cent, on the BSE. It touched a high of Rs 196 and a low of Rs 189.50 in trade today.