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Getting benefits of inorganic integration

Quick Pointers:

* FY28 capacity target raised by 15mtpa to 155mtpa via debottlenecking. 

* Orient, Penna and Sanghi have moved ~100% into Adani Cement brands driving NSR.

Ambuja Cements (ACEM) delivered a strong cons operating performance in Q2FY26 with 20% YoY volume growth (16.6mt ex-clinker), driven by ramp up of recently acquired assets. Cement NSR declined 1% QoQ due to softer prices during the quarter. ACEM benefited from higher contribution from 100% integration of Orient & Penna volumes into Adani brands as major maintenance is also completed. Decline in RM costs due to lower purchase of goods and improved logistics efficiencies resulted in ACEM delivering EBITDA/t of Rs1,045 (Rs1,060 ex-clinker). Mgmt. reiterated its focus on cost optimization, targeting exit FY26 cost of Rs4,000/t and further reduction by 5% each year to Rs3,650/t by FY28 end, driven by higher green power usage (c. 33% share, target 60%) and group synergy benefits.

Integration of acquired assets has been largely completed along with major maintenance which is expected to drive volumes and profitability. Although there are delays in organic expansion, ACEM has enough capacity to grab incremental market share (c. CU% ~65%). With planned aggressive capacity expansion and consistent efforts to engage pan-India dealer & retailer network, ACEM is well poised to outpace industry growth. We remain positive on ACEM as it continues to strengthen its cost competitiveness, scale, and market leadership. We tweak our estimates assuming lower prices in near term and expect ACEM to deliver ~14% volume CAGR and 26% EBITDA CAGR over FY25–28E. Stock is trading at EV of 14.7x/12.5x FY27/28E EBITDA. Maintain ‘Buy’ with revised TP of Rs718 (Rs701 earlier) valuing at 17x EV of Sep’27E EBITDA.

* Strong cons revenue growth aided by volumes & pricing: Cons. revenue grew 21% YoY to Rs91.7bn (-11% QoQ; PLe Rs84bn) on strong 19% volumes. Cement volumes grew 20% YoY to 16.6mt (-10% QoQ; PLe 15.5mt). Total volume incl. clinker was 16.9mt (up 19% YoY; -11% QoQ). ACEM’s market share has improved ~1pp YoY at 16.6%. Average cement realisation declined just 1% QoQ to Rs 5,195/t (+1% YoY) aided by higher pricing for acquired assets which got integrated into Adani brands (ACC/ACEM).

* EBITDA/t aided by lower RM costs: EBITDA grew 58% YoY to Rs17.6bn (-10% QoQ; PLe Rs13.8bn) on robust volumes, strong pricing on account of premium products and lower RM costs. RM costs/t declined 22% YoY to Rs777 on lower purchase of goods. P&F costs/t grew 6% YoY to Rs1,353 while freight cost/t declined 5% YoY to Rs1,224. Other expenses grew 11% YoY to Rs805 despite higher volumes. Resultant, ACEM delivered EBIDTA/t of Rs1,045/t (34% YoY/1% QoQ; Vs PLe of Rs 889/t). Cement EBITDA/t was Rs1,060/t. Cons. reported PAT grew ~4.6x YoY to Rs23bn (in-line; PLe 6.5bn) on reversal of taxes which included ACC’s reversal amount of Rs5.17bn and ACEM’s Rs11.8bn for old tax provisions following favourable High Court rulings.

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