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Recalibration strategy impacts near term volumes

Ambuja Cement (ACEM) delivered an inline operating performance in Q1FY27, despite volumes getting impacted on recalibration strategy favouring value over volumes. ACEM sacrificed low-margin volumes in non-trade segment (-21% YoY), resulting in a 7% YoY decline in cement volumes. Cement NSR improved just 1% QoQ despite price hikes across regions & premium product share of 34%, due to the consolidation of acquired assets. Cement cost declined by INR206/t QoQ, driven by lower clinker factor and better operational efficiencies, partly offset by imported fuel inflation and packing costs, leading to EBITDA/t of INR918 (vs. PLe: INR851/t). Mgmt. reiterated its FY27 volume growth guidance of ~8% and expects to recover the market share loss over the remaining quarters through stronger trade volumes & capacity additions.

During Q1FY27, ACEM prioritised value over volumes by letting go off low-margin volumes, improving trade mix, lowering clinker factor and temporarily shutting select capacities to improve operational efficiencies. These initiatives are aligned with the roadmap outlined in the past and represent a step in the right direction. However, the key is to improvise older units of ACC, Sanghi and Penna to bring in line with ACEM EBITDA/t and ramp up new units established recently; which would take few more quarters. Consistent execution on the guided cost reduction roadmap (INR250/t each in FY27 and FY28), stabilisation of acquired assets and recovery of the market share loss will be critical for delivering a sustainable improvement in profitability. We cut our FY27E/28E EBITDA estimates by ~4% each on poor ACC performance driving weak NSR. We expect consolidated ACEM’s volume/EBITDA to deliver a CAGR of 8%/14% over FY26-28E. At CMP, the stock is trading at EV/EBITDA 13.2x of FY28E EBITDA. Maintain ‘BUY’ with revised TP of Rs504 (Rs520 earlier) valuing at same 15x EV of Mar’28E EBITDA.

Revenue declined due to decline in volumes:

Cons. revenue declined 8% YoY to Rs95bn (12% QoQ; PLe Rs104.5bn) on weak volumes. Blended NSR grew 1% QoQ to Rs5,491 (+1% YoY). Pure cement realisation increased 1% QoQ to Rs 5,299/t (+1% YoY; PLe Rs5,392) aided by increase in cement prices during the quarter. Cons. Cement (incl. 0.3mt clinker) volumes declined 8% YoY to 17.3mt (-14% QoQ; PLe 18.5mt) as company focused on low lead distance high margin volumes and ignored few regions in non-trade category as per our channel checks. MSA volumes grew 5% YoY to 6.7mt

Decline in volume led to EBITDA decline:

EBITDA declined 19% YoY to INR15.9bn (+9% QoQ; PLe INR15.8bn) due to the sharp decline in volumes. RM cost/t remained flat YoY at INR803. P&F cost/t increased 4% YoY to INR1,381 due to higher pet coke prices. Freight cost/t rose 2% YoY to INR1,308, while other expenses/t increased 12% YoY to INR860 due to higher packaging costs. Consequently, consolidated EBITDA/t stood at INR918/t (- 11% YoY/+26% QoQ; PLe INR851/t). Consolidated reported PAT declined 31% YoY to INR6bn (-68% QoQ; PLe INR3.8bn) due to the absence of tax credits recognised in Q4FY26.

Key Matrices:

Premium cement share was 34% (28% YoY; 32% QoQ). Green power share improved to 34% (32% QoQ; 28% YoY), with the company targeting 60% by FY28. Kiln fuel cost stood at INR1.66/kcal (INR1.61/kcal QoQ; INR1.59/kcal YoY). Primary lead distance declined to 249km (262km QoQ; 269km YoY). Direct dispatch stood at 58% (61% QoQ; 57% YoY).

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