Capacity Addition to Help Volume Growth of Ambuja Cements
ACEM reported strong Q3 results with EBITDA growth of 54.7% yoy. EBITDA at Rs6.8bn was in line with our estimate of Rs6.6bn. OPM stood at 23.9% vs. estimate of 23.7%. The company declared an interim dividend of Rs17/share to better utilize the accumulated cash. Key positive surprises: 1) volume growth of 7.8% yoy vs. estimate of 6%; 2) lower-than-estimated realization decline of 3.5% qoq vs. estimate of 4.8% drop; and 3) increase in inter-company purchases by 92.2% in Q3/2.3x in 9MCY20 which indicates progress toward achieving the benefits of the Master Supply Agreement (MSA). EBITDA/ton increased 58%/31.6% yoy in Q3/9MCY20. The Greenfield project (2.97mt clinker and 1.5mt grinding capacity) in Rajasthan is expected to get commissioned in Q2CY21. Effective capacity increase will be 4.5mt and it should help volume growth in the North region. ACEM should benefit from capacity addition in the North region due to higher clinker utilization (90%+ in the peak season) of its current plants and cost-saving strategies (WHRS and benefits from higher inter-company purchases). We maintain Buy and OW stance in sector EAP.
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