Add Ambuja Cements Ltd for the Target Rs 450 by Emkay Global Financial Services Ltd
Ambuja Cements (ACEM) reported consolidated EBITDA of ~Rs16bn (down 19% yoy, but up 9% qoq), above our/consensus estimate by 13%/4%, respectively, due to lower-than-expected operating costs. Volume declined ~8%/14% yoy/qoq, owing to its strategy to prioritize value over volume and temporary suspension of manufacturing operations at certain facilities (>3mtpa). Cement realization was up 1.4% qoq (Rs74/t), led by improvement in trade share (4ppts yoy and qoq to 78%). Adjusting for power and fly-ash sales, the sequential inflation in (RM+P&F)/t was contained at ~Rs80 qoq due to lower clinker factor and higher consumption of renewable energy power. ACEM reported EBITDA/t of ~Rs915 (Emkay estimate: Rs775) in 1QFY27, which includes power (Rs1.5bn) and fly-ash (Rs580mn) revenues totaling ~Rs2bn. Our view: The declining cost curve was a welcome change, but was offset by a large volume decline. We will wait for margin buoyancy and stickiness led by the new strategy before revising up our numbers in the ensuing quarters. We broadly maintain our estimates and introduce FY29 estimates. We continue to value ACEM at 15x EV/EBITDA on 1QFY29E EBITDA (rolled forward), with an unchanged TP of Rs450; maintain ADD.
Value over volume; cost savings drive the beat
ACEM's consolidated revenue of Rs95bn was ~7% below our estimate, due to lowerthan-expected volumes and realization. In its pursuit of prioritizing value over volume, ACEM sold higher volumes in the trade segment, which resulted in 4ppt improvement in trade share on both yoy and qoq basis. Capacity utilization stood at ~65%, with marketshare loss in the non-trade segment. Unit variable costs were down ~4% qoq (up ~1.5% yoy), while absolute fixed costs were flat yoy on lower employee costs, even as other expenditure/t rose 3% yoy on packaging inflation and planned shutdowns. Consequently, EBITDA/t stood at Rs917 (Emkay: Rs775) vs Rs1,043 in 1QFY26 and Rs728 in 4QFY26, with EBITDAM of 16.7% vs 19.1% in 1QFY26. Adjusted PAT declined 24% yoy to Rs6bn
Taking the foot off the capex pedal
Aspiring to achieve higher returns per plant and maximize profitability (vs market share), ACEM has recalibrated its capacity target of achieving ~130mtpa by FY28 vs ~150mtpa as per earlier guidance. We estimate ~135mtpa capacity by FY29 and cumulative capex cash outflow of Rs180bn over FY27-29. ACEM’s focus to grow organically is likely to ensure net cash of ~Rs31bn by FY29E-end. We estimate ~6% volume CAGR over FY26- 29 and expect the company to log unit EBITDA of Rs895/975/1,005 in FY27E/FY28E/FY29E, respectively, vs Rs865 in FY26.
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