All India Concentrated Cement Manufacturer Ambuja Cements Limited, It reported better-than-expected operating performance in the March-ended quarter, thanks to its cost-saving efforts. Standalone Ebitda 7,900 crore in Q1CY22, fell 19% on a year-on-year basis, but was ahead of consensus estimates by 16%. Ebitda is short for earnings before interest, taxes, depreciation and amortization. The company follows an accounting year from January to December.
Ebitda was supported by lower cost as well as better volume growth. Analysts say Ambuja’s volumes rose 3% annually to 7.5 million tonnes, led by capacity additions at the recently commissioned Marwar plant in Rajasthan and demand recovery in March after weakness during January-February . However, the receipts were not as impressive.
Going forward, analysts warn of cost headwinds for the company.
“Ambuja witnessed significant turnaround in earnings over the years. Major contributors to this turnaround were manifold increase in volume under the Master Supply Agreement (with ACC Ltd.), optimization of fixed costs and reduction in specific energy consumption. On an incremental basis Analysts at Hum Prabhudas Lilladher in a report on April 29 said that there does not appear to be meaningful room for further cost reduction.
As a result, earnings expectations have plummeted. For example, analysts at IDBI Capital Markets & Securities note that EBITDA beating in the first quarter was driven by lower operating cost/tonne, efficiency gains, higher consumption of captive coal. “However, following the results, we have cut the Ebitda estimate to push up the cost of imported coal. The Ebitda for CY22E/23E has been cut by 9%/4%,” he said in a report on April 29.
But for now, investors are most likely to focus on a potential Holderind Investments Ltd (Holcim) stake sale.
Media reports said that Switzerland-based Holcim is looking to exit India and is looking for stake sale in Ambuja Cements Ltd. Holcim holds 63.19% stake in Ambuja and 4.48% in ACC. In addition, Ambuja holds a 50.05% stake in ACC.
If the deal goes through, the buy-out of Holcim’s stake would lead to mandatory open offers in both the listed companies, Ambuja and ACC. Various estimates by brokerages suggest that the acquisition cost could be around $10 billion, making it a landmark deal in the cement sector.
“We believe these assets (Ambuja and ACC) will command a significant premium given the quality of the brands, nationwide reach and huge capabilities. At current valuations, we don’t see much upside for Ambuja, but corporate action “Aggressive bidding and potentially aggressive growth in the next 10 years will make this company attractive again,” said analysts at Nirmal Bang Institutional Securities.
Ambuja shares were trading flat on the National Stock Exchange on Friday. However, in the past month, they have grown by around 30%, and this rapid move is said to be driven by new developments surrounding Holcim’s exit from India.
“Near-term share price movements are likely to be moderated by news flows related to promoter exit from India,” analysts at Emkay Global Financial Services Ltd said in a report.