Add Ambuja Cements Labs Ltd for the Target Rs 400 by Emkay Global Financial Services Ltd
Ambuja Cements (ACEM) posted consolidated EBITDA of Rs12.7bn (down ~25%/20% yoy/qoq), in line with Emkay/street estimates. Volume dipped ~1% yoy vs ~8% industry growth, as ACEM continued to prune low-margin non-trade sales. As a result, cement realization was flat qoq (down Rs11/t), led by higher premium share (37% of trade sales, up 2/3ppt yoy/qoq), despite a monsoon quarter. Blended EBITDA/t stood at Rs761, including ~Rs95/t of RE power + fly ash sales (Emkay: Rs738), vs Rs1,002 in 2QFY26 and Rs917 in 1QFY27. Our view: After focusing on value over volume for a brief period, ACEM intends to revert to market-share gains through calibrated capacity expansion. We expect this to dilute realizations, as ACEM has broadly peaked its trade share sales (~75%). To realize market share gains, ACEM will have to increase its exposure in low-yielding non-trade segment, in which it has lost market share for past 3 quarters. Current volatile fuel costs may limit its ability to achieve lean cost structure. We await sequential outperformance on margins before changing our estimates/multiples. Nonetheless, at ~$85 FY28E EV/t, ACEM is trading close to replacement value, capping downside. We retain our estimates and value ACEM at 13x 2QFY29E EV/EBITDA; retain ADD and TP of Rs400.
Premium mix holds pricing; fuel and operating deleverage squeeze margins
ACEM’s consolidated revenue was flat yoy at Rs92bn (down ~3% qoq), as volume dipped ~1% yoy (~4% qoq) even as trade volume grew ~9% yoy. Cement realization was flat qoq, with a higher premium share (37% of trade sales, up 3ppt qoq) offsetting the monsoon price dip. On the cost front, RM+P&F cost/t rose ~4% qoq (Rs82/t), as the kiln fuel rate jumped to Rs1.87/Mcal (Rs1.66/Mcal in 1QFY27). Freight/t was flat qoq despite a 5km increase in lead distance and higher diesel prices; thus, variable cost/t rose ~2% qoq (Rs84/t). Fixed cost/t climbed by ~9% qoq (~13% yoy) on higher packaging cost, planned kiln shutdowns, and operating deleverage, lifting unit operating cost by ~4% qoq (~Rs180/t). Consequently, EBITDA/t stood at Rs761 (Emkay: Rs738) vs Rs1,002 in 2QFY26 and Rs917 in 1QFY27. APAT declined ~54% qoq to ~Rs2.8bn (Emkay: Rs3.5bn).
Expansion beckons; aims to reach ~150mtpa capacity by FY29
ACEM commissioned 4.6mtpa in 2QFY27 (Dahej GU, Salai Banwa GU, and Kalamboli BU), taking cement capacity to 113.5mtpa. It targets ~119mtpa by FY27-end, while 14 new projects (~30mtpa) will take capacity to 149mtpa/155mtpa by FY29/FY30, respectively. In 1HFY27, ACEM incurred capex of Rs30bn (~45% of Rs65-70bn FY27 guidance), against OCF of Rs29bn (~2x yoy, on working-capital efficiency and tax benefits). To fund this gap and ~Rs7bn of dividend, interest, and lease payments, it drew down ~Rs5bn of cash and raised ~Rs3bn via investment liquidation and treasury income. Thus, net cash fell to ~Rs11bn from ~Rs18bn on Mar-26; we expect ACEM to turn marginally net-debt by FY27E-end.
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