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We maintain our BUY rating but increase our TP to INR625 as we factor in 1) INR300/t cost reduction benefit over FY25-28E due to higher share of renewable energy, railroad mix optimization that drives reduction in lead distance, 2) increase in premium product share that drives better realisation, 3) turnaround and consolidation of Sanghi, Penna, Orient Cement assets. We now incorporate a robust EV to CE (Enterprise Value to Capital Employed) valuation framework (Exhibit 3), which allows us a rational basis to assign a valuation multiple that captures improving fundamentals (ROCE expansion by 377bps over FY25-28E).

We forecast ACEM EBITDA to grow at a CAGR of 27.3% over FY25–28E, supported by our assumptions of volume growth at 12.0%/9.0%/9.0% and realisation growth of 1.5%/0.5%/0.5% in FY26E/FY27E/FY28E, respectively. We remain positive on ACEM, supported by the group’s strong presence in the cement sector and the recently announced merger of Sanghi Industries and Penna Cement with the parent company, Ambuja.

Over the medium to long term, management may look to consolidate all its cement entities under a single platform, which in our view would be a significant rerating event for Ambuja. At this stage, consistent focus on cost reduction, targeting a higher share of premium products, and focus on capacity expansion are positive, while a not-so-straightforward corporate structure is a drag.

We arrive at a 1-year forward TP of INR 625/share for ACEM. We now value ACEM on our EV/CE framework – we assign an EV/CE multiple of 2.3x/2.3x for FY27E/28E, which we believe is conservative given the increase of ROCE from 3.9% in FY25 to ~7.7% in FY28E under reasonable operational assumptions. This valuation framework gives us the flexibility to assign a commensurate valuation multiple based on an objective assessment of the quantifiable forecast financial performance of the company. We do a sanity check of our EV/CE TP using the implied EV/EBITDA multiple. On our TP of INR 625 ,FY28E implied EVEBITDA multiple would be in the range of ~10-11x. Management has indicated the cement industry is expected to grow by 7-8% in FY26. Increase in RM Cost, slowdown in construction activities due to heatwaves, sudden large spike in petcoke prices as a result of various global dynamics are risks to our BUY rating.

Q4FY25: Revenue inline, while EBITDA & Profitability were a beat

ACEM reported Q4FY25 Revenue and EBITDA of INR56,814 Mn (+18.8% YoY, 12.7% QoQ) and INR10,382 Mn (+30.1% YoY, +72.9% QoQ) vs CEBPL estimates of INR57,848 Mn and INR8,534 Mn, respectively. In our view market expectation of Q4FY25 EBITDA was in the range of INR 8,300 – 9,500 Mn, so the reported numbers are better than street expectations. Volume for Q4 stood at 11.6 Mnt (vs CEBPL est. 11.4 Mnt), up 22.1% YoY, and 14.9% QoQ.

Realization/t came in at INR4,898/t (-2.7% YoY, -1.9% QoQ), which is lower than CEBPL's est. of INR5,068/t. Total cost/t came in at INR4,003/t (-4.5% YoY, -9.0% QoQ). As a result, EBITDA/t came in at INR895/t (vs CEBPL est. of INR748/t), up 6.6% YoY and up 50.5% QoQ.

Targeting INR300/t cost reduction between FY26 to FY28:

We believe ACEM’s management is on track to achieve its targeted total cost of INR 3,650/t by FY28, having already delivered a cost reduction of ~INR175/t. We expect Power & Fuel costs to decline by ~INR150/t, aided by the company’s target to achieve 30% WHRS capacity by FY28. Additionally, ACEM is entering into long-term supply agreements, which are expected to drive an ~8–10% reduction in raw material costs. With continued focus on cost optimization, we estimate ACEM’s EBITDA/t to grow at a CAGR of 24.5%, reaching INR1,157/t by FY28.

Focusing on premium push and aggressive capacity expansion to drive volume growth:

ACEM’s consolidated cement capacity is expected to increase from 100 Mnt at the end of FY25 to 140 Mnt by FY28, with a near-term target of reaching 118 Mnt by FY26. The company is also focusing on driving premiumization, aiming to increase the share of premium products to 35% by FY26, up from 29% in FY25. Supported by its robust capacity expansion, premium product push, and improving cement realisations, we project ACEM’s revenue to reach INR 221.1 Bn in FY26, INR 242.3 Bn in FY27, and INR 265.4 Bn Mnt in FY28.

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