Traditionally, Ambuja has upset the road with comparatively sluggish and at occasions delayed capability addition, resulting in market share losses over the previous decade.
Nevertheless, completion of the long-awaited 3MTPA capability at Marhwa Mundwa and growing confidence on the renewed progress focus (goal to develop to 50MTPA capability in 5 years from 30MTPA at the moment) has partly buoyed investor sentiment. A greater than anticipated pricing surroundings has helped the inventory value as properly.
We stay optimistic on the general cement demand surroundings, as mentioned in our notice The occasion is just not over but (17 March 2021), led by each the infrastructure and housing sectors. Inside that, Ambuja is properly positioned, with presence within the secure and rising Northern and Japanese markets (cumulatively 60% of capability). We already think about quantity progress of 12% CAGR over CY20-23e. We stay watchful of progress execution and indicators of acceleration to develop into extra constructive.
What’s driving our larger TP: However the marginal pricing strain rising up to now two months (July-August), we count on FY22/CY21 pricing tendencies for the trade to be higher than our earlier expectations. A broad-based (by area) pick-up in demand and pass-through of an increase in enter prices ought to result in an upward revision in realisations. As mentioned in our latest notes (eg Cementing ESG, 12 Might 2021, and Bettering operational resilience, 30 April 2021), ongoing price effectivity programmes at Ambuja have exceeded market expectations and will greater than offset the rise in enter prices. We enhance our realisation assumption by 3% in CY22/23e, resulting in an 11-15% enhance in CY22e/ 23e earnings, partially offset by larger enter prices. Importantly, factoring in improved progress and working metrics we enhance our valuation a number of for Ambuja to 15x CY23e EBITDA (from 13x), which is a 12% low cost to our goal valuation for its largest peer. We thus increase our TP to INR420 (from INR340).
Downgrade to Maintain: With c4% draw back implied by our new TP, we downgrade our ranking to Maintain, from Purchase. There may be restricted upside danger to our revised valuation and estimates and not using a significant optimistic shock in capability enlargement and pricing. Our CY21/22e EBITDA estimates are already 3-5% above consensus. Larger than anticipated non-trade combine is a danger to realisations, whereas continued enhance in petcoke and diesel costs remains to be a danger to earnings. As anticipated, friends’ capability addition plans have additionally gathered tempo, particularly within the North, Central, and by smaller regional gamers.
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