Accumulate Ambuja Cements Ltd For Target Rs. 616 By Elara Capital
Lower other expenses lead to earnings surprise
Ambuja Cements (ACEM IN) reported a consolidated EBITDA of ~INR 18.7bn, ahead of our and consensus estimates of ~INR 16.4bn each, primarily aided by lower-than-expected operating cost. While staff cost fell due to a reduction in employee strength, the fall in other expense was driven by lower spending on advertising and sales promotional expenses. Cash and cash equivalents stood at ~INR 101bn as of end-March 2025 versus ~INR 87.5bn as of end-December 2024 and ~INR 160bn as of end-March 2024. On 22 April 2025, ACEM completed the acquisition of Orient Cement (ORCMNT IN). We expect volume ramp-up from acquired assets to enable the company to grow faster than the industry. Current prices in its core market are ~INR 7/bag better than Q4 average, which should support near-term margin. Thus, we reiterate Accumulate with a TP of INR 616, based on 18x FY27E EV/EBITDA.
Lower discretionary spend supports margin: Realization declined ~1% YoY but rose ~3% QoQ to INR 5,300/tonne. Consolidated sales volume grew ~13% YoY and QoQ each to ~18.7mn tonnes. Operating cost declined ~1% YoY and ~7% QoQ to ~INR 4,299/tonne, ~4% lower than our estimates, largely due to a sharp reduction in employee cost and other expenses, which were down ~18% QoQ and ~20% QoQ, respectively. While staff cost declined due to a reduction in headcount, fall in other expenses was primarily driven by lower spending on advertising and sales promotions. As a result, EBITDA/tonne fell ~2% YoY but jumped ~86% QoQ to INR 1,001 versus our estimates of INR 875 and the highest in FY25 for ACEM.
ACEM hits a century, reaches 100mn tonnes of cement capacity: ACEM’s cement capacity rose from ~76mn tonnes in FY24 to ~100mn tonnes as of end-April 2025, driven by: 1) acquisition of a 1.5mn tonnes grinding unit from the My Home Group, 2) acquisition of Penna Cement and ORCMNT, and 3) completion of a 2.4mn tonnes grinding unit at Farakka (West Bengal) along with 0.5mn tonnes added via debottlenecking across plants. Work on the announced growth capex of ~19mn tonnes is on track, while ~21mn tonnes of projects are under evaluation. Post completion, capacity is likely to touch 140mn tonnes by FY28. Further, out of the targeted 1GW renewable energy capacity, ACEM added 200MW solar and 99MW wind capacity in FY25, taking green power share to ~21%. The remaining ~700MW is expected by June 2026, with management reiterating a 60% green power share target by FY28.
Reiterate Accumulate with an unchanged TP ofINR 616: We believe ACEM is well-positioned to deliver healthy volume growth, led by better demand, ramp-up in acquired assets and completion of ongoing capacity expansions. Additionally, while the recent uptick in cement prices will support near-term margin, its continued focus on cost saving initiatives should help keep a check on margin in the medium term. Thus, we reiterate Accumulate. We introduce FY28E and raise our EBITDA estimates by ~5% for FY26E and ~1% for FY27E to reflect the recent rise in cement prices and inclusion of ORCMNT into our estimates. We retain our TP at INR 616, based on 18x (unchanged) FY27E EV/EBITDA. Sub-par demand, weak cement price and a sharp rise in fuel price are key risks to our call.
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SEBI Registration number is INH000000933
