JP Morgan remains 'underweight' on Ambuja Cement; sets a price target of Rs 145

MUMBAI: JP Morgan remain Underweight on Ambuja Cement and set target price for Jun-13 of Rs 145 based on $130/MT CY13E EV/MT. Key risks to the price target as per JM Morgan is a sharp recovery in cement demand to help drive higher than expected volume growth (and therefore utilization levels) and reduction in coal costs leading to decline in operating cost per tonne.

Demand has not been particularly strong in the last 2 months, but cement prices have moved up across most markets in June and July. Lack of rains in the monsoon is positive for cement demand in the near term given the extended construction season, and for Ambuja Cement, it should mean a smaller quarter on quarter drop in the seasonally weak Sept quarter. A weak monsoon is not positive for cement demand from a 12 month perspective, given the likely negative impact on rural housing construction, the report said.

Ambuja Cement reported earnings in line with estimates. Lesser rains in Monsoons, should lead to lower cement price correction driven by an extended construction season. "We increase our CY13E EPS estimates by 13% driven by higher ASP" said JP Morgan note.