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In-line quarter

For standalone Jan-Mar 2023 quarter (Q5FY23), Ambuja Cement’s (Ambuja) EBITDA stood flat YoY and increased 23% QoQ to Rs7.9bn, in-line with our estimates. EBITDA/ton declined 8% YoY and increased 18% QoQ to Rs977 (Emkay Est.: Rs990). Management has reiterated its key focus areas: i) doubling of capacity from ~68mt to 140mt in five years; ii) Rs300-400/ton improvement in FY24 EBITDA by optimizing manufacturing and logistics cost; and iii) enhancing sales and marketing initiatives to improve the topline. The group is looking to set up 40mt clinker capacity (likely 10 lines of 4mt each); equipment ordering is in advanced stage and is likely to be announced soon in a phased manner, as per management. Consolidated net cash increased Rs1.7bn YoY/Rs21bn QoQ to Rs115bn as of Mar-23. We have broadly maintained our FY24-25 EBITDA estimates. However, factoring in the reduction in ACC’s TP, we have revised our Mar-24 TP for Ambuja to Rs415/share (earlier Rs425), based on 15x EV/E.

Results Summary: Cement realization/ton (incl. other operating income) grew 1% YoY/fell ~2% QoQ to Rs5,273. Volumes (incl. clinker) rose 8% YoY and 5% QoQ to 8.1mt (Emkay est.: 7.8mt). Total cost/ton increased by ~3% YoY/declined ~5% QoQ to Rs4,531 vs. our estimate of Rs4,409, owing to lower-than-expected input cost and better operating leverage. Adj. PAT grew 18% YoY/36% QoQ to Rs5.8bn; it has been adjusted for ‘exceptional item’ of Rs807mn, which pertains to a one-time restructuring cost. Standalone net cash increased by Rs42bn YoY/~Rs18bn QoQ to Rs84bn as of Mar-23.

What we liked: Better-than-expected volume growth and cost initiatives What we did not like: Lower-than-expected realization and an increase in related-party transactions (RPTs)

Earnings call KTAs: 1) Mgmt. has highlighted its key focus areas – i) Doubling of capacity from ~68mt to 140mt in five years, with the addition of 40mt clinker capacity. Ambuja is looking to set up 10 lines of 4mt each with 90% capacity addition likely through the brownfield route. Mgmt. indicated the entire capex of Rs460bn (over five years) will be funded through internal accruals and any warrants infusion by promoters will be an additional support. ii) Rs300-400/ton improvement in EBITDA for FY24 by optimizing manufacturing and logistics costs. Ambuja is looking to increase WHRS capacity from 70MW to 175MW by Q2FY25; the share of AFR is expected to increase from ~9% to 15% by FY24-end and ~30% in mid-term. Besides, mgmt. is targeting a reduction in lead distance, warehouse optimization and mode mix improvement; iii) Sales and marketing initiatives to focus on 10 high growth states, increase in the share of the B2B segment from 21% to 25% by FY27 and premium products from 22% to ~30%. 2) As per mgmt., outstanding for coal advances stood at Rs14bn, which are likely to be completed in the next few months. 3) RPT reported in ACC/Ambuja is related to the five-year, long-term branding arrangement entered with Adani Sportsline for marketing/sponsorship in several sports leagues (eg. women IPL and Kabaddi league). 4) Mgmt. indicated all upcoming clinker lines will be having adequate limestone reserves. The equipment order is in advanced stage and is likely to be announced soon in a phased-out manner

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