Why Analysts Are Upbeat On Ambuja Cements Despite Q3 Results Missing Estimates
A worker unloads sacks of cement from a freight train in India. (Photographer: Kuni Takahashi/Bloomberg)

Why Analysts Are Upbeat On Ambuja Cements Despite Q3 Results Missing Estimates

Ambuja Cements Ltd.’s operational performance missed estimates in quarter ended September, but cheaper valuation of the cement maker compared to peers and a possibility of inventory gains going ahead kept analysts bullish.

Operating profit rose 23 percent year-on-year to Rs 440 crore in the July-September period, according to its exchange filing. That compares with Rs 473 crore consensus estimate of analysts tracked by Bloomberg. The company’s operational performance lagged estimates mainly because of an increase in cost and other expenses.

Ambuja Cements follows January-December fiscal year.

The company’s unitary Ebitda (earnings before interest, tax, depreciation and amortisation per tonne) rose 28 percent over the last year to Rs 836. Its volume fell 4 percent year-on-year, impacted by floods in Maharashtra, Gujarat and Bihar.

Here’s what brokerages said about Ambuja Cements’ Q3 Results 2019-20:

HSBC

  • Retains ‘Buy’ rating; target price unchanged at Rs 230 a share.
  • Ambuja Cements’ ebitda/tonne of Rs 841 lower than ACC Ltd.’s Rs 860.
  • Ambuja Cements had outperformed ACC for last two quarters.
  • Stock trades at a discount to historical average and peers UltraTech Cement Ltd. and Shree Cement Ltd.

Citi

  • Maintains ‘Buy’ rating but cuts target price to Rs 207 from Rs 270 apiece.
  • Company has 38 percent of capacity in north; pricing was resilient sequentially.
  • Pricing fell 4-4.5 percent in the west and east year-on-year.
  • Ambuja has 38 percent and 24 percent of capacities in west and east, respectively.
  • Sharp cost increase is a negative surprise.
  • Full impact of lower petcoke prices yet to kick in for company.
  • Demand/price improvement post Diwali.

Ambit Capital

  • Maintains ‘Buy’ rating with a target price of Rs 260 a share.
  • Expects company to opt for reduced corporate tax rate by December 2019.
  • Higher power and fuel cost per tonne were offset by lower raw material cost.
  • Ambuja is a safety bet amid the recent demand slowdown.

Kotak Institutional Equities

  • Maintains ‘Buy’ rating with a target price of Rs 200 apiece.
  • Costs were higher due to usage of high-cost coal inventory and higher other expenses.
  • Weak prices should keep margins range-bound.
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