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Weak Quarter; Recalibration & Reset Ahead

Ambuja Cement (ACEM) delivered a weak cons Q4 operating performance, impacted by

a) lower ramp up & higher repairs at acquired assets

b) softer volume growth of 7% YoY 

c) elevated costs on branding, fuel and freight. Cement NSR increased marginally despite price hikes in regions and higher premium cement share of ~36%. RM & other costs increased on higher fly ash & PP bags inflation while freight costs impacted amid plant shutdowns leading to cost rising to ~INR4,500/t. EBITDA/t declined to INR728/t (PLe INR771/t). Management indicated Q4 costs represent a peak, with reduction expected ahead, while guiding for ~8% volume growth in FY27.

After two years of underperformance on execution and profitability, ACEM mgmt. is recalibrating its approach by

a) prioritising sweating off existing assets over new additions (new project IRR of ~18%)

b) recalibration at existing integrated units to reduce lead distance

c) continued focus on cost reduction. The focus is now improving utilisation and driving cost efficiencies (targeting ~INR250/t savings each in FY27 and FY28), before undertaking further capacity expansion. We believe this strategic shift is directionally positive; however, the key monitorable will be on-ground execution of cost savings and ramping up/ stabilisation of acquired assets. Successful delivery on these fronts could drive a more sustainable improvement in profitability over the medium term. We cut our FY27E/28E EBITDA estimates by ~11%/10% mainly on lower volume assumptions. We expect ACEM’s volume/EBITDA to deliver a CAGR of 8%/23% over FY26-28E. At CMP, the stock is trading at EV of 14.8x/12.4x of FY27/28E EBITDA. Maintain ‘BUY’ with revised TP of Rs524 (Rs598 earlier) valuing at same 15x EV of Mar’28E EBITDA.

9% revenue growth on muted volumes:

Cons. revenue grew 9% YoY to INR109bn (12% QoQ; PLe INR107bn) on muted volume growth. Blended NSR remained flat QoQ at INR5,431/t, impacted by integration of acquired assets despite higher pricing. Pure cement realisation increased 1% QoQ to INR5,235/t (+1% YoY; PLe INR5,271/t) aided by increase in cement prices during the quarter. Premium cement share was 36% (32% in Q4FY25). Cons. cement (incl. 0.2mt clinker) volumes grew 7% YoY to 20.1mt (6% QoQ; PLe 20.4mt). MSA volumes grew 31% YoY to 8.3mt.

EBITDA/t impacted by higher operating costs:

EBITDA declined 22% YoY to INR14.6bn (+8% QoQ; PLe INR15.7bn) on higher costs across other expenses (PP bags, plant shutdowns), P&F and freight. RM costs/t increased 2% YoY to INR977. P&F costs/t grew 6% YoY to INR1,304 due to higher kiln fuel costs and increased clinker production. Freight cost/t increased 5% YoY to INR1,318 due to servicing longer lead markets amid planned plant shutdowns at Penna. Other expenses/t increased sharply by 28% YoY to INR886 despite higher volumes, led by higher packaging, branding and incremental shutdown repairs cost. Resultantly, cons. ACEM delivered EBITDA/t of INR728/t (-27% YoY/+2% QoQ; vs PLe INR771/t). Cons. reported PAT grew 37% YoY to INR18.5bn (365% QoQ; PLe INR4.4bn), led by tax credits.

Important metrics:

Green power share stood at 32% (36.9% QoQ; 26% YoY), with target to reach 60% by FY28. Kiln cost came at INR1.61/Kcal (INR1.65/Kcal QoQ; INR1.58/Kcal YoY). Primary lead distance stood at 262km (257km QoQ; 263km YoY). Direct dispatch remained at 61% (flat YoY and QoQ).

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