IGI Logo

Ambuja Cements (ACEM) reported consolidated EBITDA of Rs14.6bn (down 22% YoY), missing consensus’/our estimates by 22%/10%, respectively. ACEM’s elevated cost levels continue to pinch margins, as unit total operating costs increased 8% YoY (flat QoQ), primarily led by a 22% rise in fixed cost/t. During Q4, ACEM witnessed higher costs from slow ramp-up of acquired assets (shutdown in a few plants), higher branding outflow, and higher packaging and logistics costs due to the Middle-East (ME) crisis. LFL volume growth (per internal calculation) stood flat YoY (vs industry growth of 6-7%), while cement realization was up ~1% QoQ. Consequently, EBITDA/t stood at Rs730 (Emkay: Rs830) vs Rs1,000 in Q4FY25 and Rs710 in Q3FY26. Further, the management has re-calibrated its capacity target and now aims to achieve >150mtpa by FY30 (vs FY28 earlier). Our view: We revise up FY27E EBITDA by ~7%, on management commentary of limited impact of the ME crisis on margins. However, we await a demonstrable cost-reduction print before accounting for it in our numbers and hence cut FY28E EBITDA by ~10%. At CMP, the stock trades at 14.5x FY28E EV/EBITDA, and we believe current valuations limit any further downside. We continue to value ACEM at 15x EV/EBITDA on Mar-28E EV/EBITDA, while cutting our TP by ~5% to Rs450 from Rs475; maintain ADD.

Weak performance on all fronts

ACEM’s Q4 consolidated revenue at Rs109bn stood in line with our estimates. Cement capacity utilization stood at 77%, though LFL growth was flat YoY, implying market share loss for the quarter. Cement realization increased by a meagre ~1% QoQ despite the 700bps sequential improvement in trade share. Logistical costs drove the maximum increase in unit variable costs, rising 5%/6% YoY/QoQ due to longer lead times (serving long-lead markets due to planned shutdowns). The company did not receive any operating leverage benefits during the quarter due to 1) higher branding expenses, 2) higher packing material costs, 3) incremental shutdown costs, and 4) additional goods tax in certain states. Consequently, EBITDA/t stood at Rs730 (Emkay: Rs830) vs Rs1,000 in Q4FY25 and Rs710 in Q3FY26. Adjusting for tax reversals, PAT stood at Rs5.7bn, down 31% YoY.

Taking the foot off the capex pedal

Aspiring to achieve higher returns per plant and maximizing profitability (vs market share), ACEM has recalibrated its capacity target of reaching >150mtpa by FY28 to FY30 now. We estimate ~125mtpa capacity by FY28E and cumulative capex cash outflow of Rs110bn over FY27E-28E. ACEM’s focus to grow organically is likely to ensure net cash of ~Rs45bn by FY28E-end. We estimate ~8% volume CAGR over FY26-28E, and see the company’s unit EBITDA logging at Rs865/890/950 in FY26/27E/28E, respectively

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354