15 March 2013
Annual Report Update | Sector: Cement
Recovery expected in CY13; constantly improving efficiencies
Key takeaways from CY12 Annual Report
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
Adj. EPS (INR)
EPS Gr. (%)
Financials & Valuation (INR b)
2012E 2013E 2014E
Management expects demand to recover in CY13 with 7.5-8% growth, albeit negated
by cost inflations.
Rising energy cost and depleting availability, increasing entry barrier/execution
challenge, CCI penalty, de-allocation of coal blocks are being considered as immediate
Ambuja Cement (ACEM) posted a sub-par volume growth in CY12 led by weak sales
volume in west, south and export, while north and east volume remains steady.
Cost inflations in R/M, energy and freight continues to remain overhangs, albeit
improvement in operating efficiencies in most aspects and various cost savings initiatives
offset the impact partially.
Guided for INR11b of capex in CY13, aiming commencement of construction in 4.5MT
greenfield plant at Rajasthan.
VALUATION & VIEW: For CY13/14, we are downgrading (1) realization growth estimate
to INR8/12.5 per bag (v/s INR10/12.5 earlier), and (2) volume growth to 5.3%/8%
(v/s 8%/8% earlier). This results in 7-8% downgrade in CY13/14 EPS estimates. Maintain
Sub-par volume growth
West-South de-growth, weak infra spend
inhibit CY12 demand
ACEM posted a modest 2.5% YoY growth in CY12 volume (including clinker)
to 21.98MT, which is significantly below the estimated industry growth of
Volume growth was dragged down by weakness in West and South India
(down 2.6% YoY) driven by (1) shortage construction materials, (2) fewer
new projects, and (3) drought-like situation in many parts of Maharashtra.
In contrast, North and East volumes grew a steady 8.5%/6.9%. Adverse
international market led to decline in cement export to 0.12MT from 0.37MT
Demand was largely driven by rural housing and roads; infrastructure and
construction-led consumption remain subdued due to (1) lack of government
initiatives, (2) extended monsoon, and (3) shortage in construction inputs,
both materials (sand, bricks, water) and labor.
Shareholding pattern %
Dec-12 Sep-12 Dec-11
Stock performance (1 year)
Demand optimism despite cost-side
Growth to recover in CY13:
The ACEM management believes medium-term
growth outlook for cement demand is intact. The near-term demand upcycle
in expected to start in CY13 driven by (1) positive contribution from hitherto
muted infrastructure and construction demand on the back of upcoming
state and national elections, and (2) potential upturn in investment cycle on
the back of likely monetary easing, policy reform etc. It expects 6%+ GDP
growth to translate into 7.5-8% YoY growth in cement demand.
(Jinesh@MotilalOswal.com) + 91 22 3982 5416
(Sandipan.Pal@MotilalOswal.com); +9122 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.