Ambuja Cements Q1CY20 results ahead of estimates

ACEM’s Q1CY20 results were ahead of our estimates on operational parameters, led by higher realization and lower variable costs. Adjusted EBITDA stood at Rs6.1bn vs.estimated Rs4.9bn and EBITDA/ton came in at Rs938 vs. estimated Rs719. Higher realization and lower variable costs help better performance. Higher cement prices in the North and Gujarat markets benefitted ACEM as realization increased 7.5% yoy/3% qoq during Q1. Lockdowns announced by the government led to a 9.8% yoy drop in sales volumes. Opex/ton was flat yoy as the impact of higher RM costs (up 12.4% yoy led by higher fly ash costs) and other expenses (up 14.4% yoy due to higher traded goods) were negated by lower energy costs (down 12.2% yoy/4.8% qoq due to reduction in pet coke prices). Variable costs (including inventory adjustments) were down 10.1% yoy and 12.7% qoq. Higher realization and lower variable costs led to a 31.4% yoy increase in adjusted EBITDA to Rs6.1bn and a 5.7pp improvement in OPM to 21.5%. EBITDA/ton was at Rs938 vs. Rs598/Rs687 in Q1CY19/Q4CY19. Other income was down 53.3% yoy as Q1CY19 had dividend income from ACC. Lower other income restricted adjusted profit growth to 11.3% yoy despite much better operating performance. Volumes are expected to remain under pressure for the next six months due to lockdowns and supply chain-related issues. Despite the near-term challenges, valuations look attractive at 11x/9.2x CY21/22E EV/EBITDA. The company maintains Buy/OW stance in sector EAP.