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No respite in Q2; H2 to be better on a weak base

Ambuja Cements (ACEM) delivered a weak operating performance again in Q2FY27 due to decline in volumes and higher operating costs. Volumes declined 1% YoY as the company continued to prioritise value over volumes and curtail low-margin institutional sales. Blended NSR remained flat QoQ due to higher premium share negated by weak cement pricing. Higher pet coke and imported coal prices increased P&F costs/t, while higher diesel costs pushed up freight costs/t and elevated packaging and maintenance costs increased other expenses/t. Consequently, EBITDA/t declined 27% YoY to INR761 (PLe INR792/t). EBITDA/t also includes contributions from green power and fly ash sales, which together contributed ~INR97/t. Management expects volumes to grow ahead of the industry in H2FY27, supported by stronger trade volumes, ramp-up of new capacities and calibrated institutional sales. ACEM has already realised a price hike of ~INR10/bag in October, with further hikes expected over the coming months.

While ACEM continues to work on structural cost levers, the benefits are yet to fully translate into operating performance, weighing on profitability and resulting in market share loss. Although volumes were impacted by its value-over-volume strategy, management expects growth to improve in H2FY27. However, sustained improvement in profitability will hinge on translating the guided cost-reduction roadmap into actual savings, alongside improving efficiencies at acquired assets/ old ACC assets and ramping up of recently commissioned capacities. We believe successful execution on these fronts is still few quarters away as impact of recalibration strategy is not seen in EBITDA/t. We cut our FY28E/29E EBITDA estimates by ~3%/2% incorporating lower volumes. We expect consolidated ACEM’s volume/EBITDA to deliver a CAGR of 8%/13% over FY26-29E. At CMP, the stock is trading at EV/EBITDA 12.5x/11.2x of FY28/29E EBITDA. Maintain ‘BUY’ with revised TP of Rs474 (Rs498 earlier) valuing at same 15x EV of Sep’28E EBITDA.

Revenue declined on decline in volumes & flat NSR: Cons. revenue remained flat YoY to INR92bn (-3% QoQ; PLe INR96bn) on weak volumes. Blended NSR remained flat QoQ to INR5,507 (+1% YoY). Pure cement realisation remained flat QoQ to INR5,298/t (+2% YoY; PLe INR5,299) due to decline in cement prices during the quarter. Cons. Cement (incl. 0.2mt clinker) volumes declined 1% YoY to 16.7mt (-3% QoQ; PLe 17.2mt) as company focused on calibrated sales. MSA volumes declined 5% YoY to 6.4mt.

Higher costs along with lower volumes led to sharp decline in EBITDA: EBITDA declined 28% YoY to INR12.7bn (-20% QoQ; PLe INR13.6bn) due to sharp inch up in fuel costs. RM costs/t declined 5% YoY to INR735 as BCFC transport mode of Fly Ash resulted in lower RM costs. P&F costs/t grew 13% YoY to INR1,528 on higher global coal prices. Freight cost/t increased 7% YoY to INR1,305 due to increase in lead distance. Other expenses per ton shot up 18% YoY to INR954 due to higher packaging costs and higher maintenance costs. Resultant, cons. ACEM delivered EBITDA/t of INR761/t (-27% YoY/-17% QoQ; vs PLe of INR792/t). Cons. reported PAT declined 89% YoY to INR1.9bn, led by tax credits (-68% QoQ; PLe INR4.1bn). Exceptional item of INR850mn towards VSS payout for third-party workforce at an ACC plant.

Key Matrices: Premium cement share was 37% (35% YoY; 34% QoQ). Green power share improved to 61% (48% QoQ; 41% YoY), with a target to reach 60% by FY28. Kiln cost came to INR1.87/kcal (INR1.66/kcal QoQ; INR1.60/kcal YoY). Primary lead distance was 254km (249km QoQ; 265km YoY). Direct dispatch was 57% (58% QoQ; 59% YoY).

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