GEPL Capital calls a ‘Buy’ on Ambuja Cements
CMP: Rs. 152 Target: Rs. 205
Net sales for Q1CY12 grew by 19.7% Y-o-Y to Rs 26,609 mn. This was mainly driven by higher volumes and better realisation. EBIDTA margins for Q1CY12 stood at 29% showing an increase of 80bps on Y-o-Y basis and 995bps on Q-o-Q basis. Net profit for Q1CY12 declined by 23.4% Y-o-Y to Rs3,122 mn, the decline was attributable to change in depreciation method for fixed assets pertaining to captive power plant from Straight Line Method (SLM) to Written down value method (WDV). As a result of this, company has recognised an additional depreciation of Rs 2,890.8 mn. Amount relating to earlier years has been disclosed as exceptional item amounting to Rs 2,791.3 mn.
Result Highlights: Strong realisation coupled with better volumes helped Ambuja report good numbers for Q1CY12: Blended realisation of cement per bag for Q1CY12 stood at Rs220/bag showing a growth of 9.0% Y-o-Y. This was mainly on account of strong demand in the regions where Ambuja gets its major chunk of revenue (North (40%), West (40%) and East (20%)). Sales volumes for Q1CY12 grew by 9.8% on Y-o-Y basis to 6.05 mn MT.
EBIDTA margins for Q1CY12 stood at 29% showing an increase of 80bps on Y-o-Y basis and 995bps on Q-o-Q basis. This was mainly on account of more than proportionate increase in realisation as against an increase in cost of production. On per bag basis the cost of production for Q1CY12 rose by 7.8% Y-o-Y to Rs156, whereas realisation grew by 9% Y-o-Y to Rs220. The power & fuel costs which accounted for 33.2% of the total expense rose by 18.5% Y-o-Y for Q1CY12 on per bag basis and the freight costs per bag also rose by 7.7% Y-o-Y for Q1CY12.
Valuation & viewpoint: We maintain our target of Rs 205.7 arrived based both on EV/MT and EV/EBIDTA on a differential weightage, with a BUY rating on the stock. For the quarter ended March 31, 2012, Ambuja has reported topline growth of 19.7% which is slightly below our estimates of 22.5% Y-o-Y. However, at the EBIDTA level company has reported better numbers owing to lower increase in power & fuel costs and transportation costs as compared to ACC. Demand for cement is expected to remain strong in Q1FY13; however, owing to recent intervention by CCI on cartelisation we don’t expect a strong up-tick in cement prices in Q1FY13. We believe that RBI’s move might trigger demand from housing and industrial segment in the near term. Also projects like DMIC (Delhi Mumbai industrial corridor) coupled with encouraging data on project implementation under public private partnership should help cement companies in the long run.
Angel Broking calls a ‘Buy’ on Reliance
CMP: Rs. 735 Target: Rs. 872
For 4QFY2012, Reliance Industries (RIL) reported 17.2% yoy growth in its top line. However, EBITDA and PAT declined by 33.3% yoy and 21.2% yoy, respectively, due to a decline in KG-D6 gas production and lower gross refining margins (GRMs).
Lower gas production leads to a decline in bottom line: RIL’s net sales increased by 17.2% yoy to Rs 85,182cr, in-line with our estimate of Rs84,669cr. However, EBITDA decreased by 33.3% yoy to Rs 6,563cr on account of lower profits from all its three main segments. GRM stood at US$7.6/bbl in 4QFY2012 compared to US$9.2/bbl in 4QFY2011 and US$6.8/bbl in 3QFY2012. Production from KG-D6 stood at 35mmscmd in 4QFY2012 compared to 41mmscmd in 3QFY2012 and 51mmscmd in 4QFY2011. Other income increased by 150.3% yoy to Rs2,295cr and depreciation expenses decreased by 21.5% yoy to Rs2,659cr. Hence, despite the 33.3% decline in EBITDA, PAT decreased by only 21.2% yoy to Rs4,236cr.
RIL to set up a petcoke gasification plant: During 4QFY2012, RIL finalized its plan to set up a petcoke gasification plant for a capex of US$4bn. The company also downgraded its KG-D6 reserves by 12-15% due to reservoir complexity.
Petrochemicals and refining segments drive RIL’s top-line growth: RIL’s 4QFY2012 results were broadly in-line with our estimates. The company’s net sales increased by 17.2% yoy to Rs 85,182cr, in-line with our estimate of Rs84,669cr. Net sales growth was mainly driven by the petrochemicals segment (+17.7% yoy to Rs 21,412cr) and refining segment (+21.5% yoy to Rs76,211cr). During 4QFY2012, RIL finalized its plan to set up a petcoke gasification plant for a capex of US$4bn. The company also downgraded its KG-D6 reserves by 12-15% due to reservoir complexity.
Outlook and valuation: RIL’s refining and petrochemical segments’ profits declined during 4QFY2012. Going forward, although there are some concerns on the KG basin gas output, we believe RIL along with BP will optimize its producing blocks in KG-D6. Moreover, the stock is currently trading at a PE of 11.1x FY2013E and 10.4x FY2014E, compared to its past five-year trading average of 17.0x forward PE. Thus, we maintain our Buy recommendation on RIL with an SOTP target price of Rs 872.