Buy Ambuja Cements for the Target Rs 500 by Motilal Oswal Financial Services Ltd
Subdued volume; operating performance in line Cost optimization to drive margin recovery
* Ambuja Cements’ (ACEM) 1QFY27 operating performance was in line with our estimates as lower-than-estimated opex/t was offset by lower-thanestimated volume and realization/t. Consolidated revenue/EBITDA declined ~8%/19% YoY to INR95.0b/INR15.9b. It reported EBITDA/t of INR929 (down ~13% YoY; ~9% above estimates). However, EBITDA/t adjusted for gain on sale of renewable power works out to be INR850-860/t. Adj. PAT before MI declined ~40% YoY to INR5.8b (~21% beat led by lower depreciation and ETR).
* Management highlighted its strategy of prioritizing profitable growth over volume, with trade sales increasing to ~78% of total volumes (vs. 74% YoY). It is consciously reducing low-margin non-trade business in acquired assets. This strategic shift impacted near-term capacity utilization but is expected to improve profitability. It is targeting volume growth of ~8% YoY in FY27. Cost improvement QoQ was driven by a higher trade mix, lower clinker factor, logistics optimization and fixed-cost efficiencies. Its consolidated grinding capacity is estimated to increase to ~119mtpa by FY27-end vs. 109mtpa currently, for which expansion plans at various locations are progressing.
* We largely maintain our earnings estimates for FY27/FY28. We value the stock at 16x FY28E EV/EBITDA to arrive at our TP of INR500. Reiterate BUY.
Volume down ~7% YoY; blended realization/t declines ~1% YoY
* Consol. revenue/EBITDA/adj. PAT (before MI) stood at INR95.b/INR15.9b/ INR5.8b (-8%/-19%/-40% YoY, and -6%/+4%/+21% vs. our estimates) in 1Q. Consol. volume declined ~7% YoY to 17.1mt (~4% below our estimates). Realization/t fell ~1% YoY (+1% QoQ; ~1% below our estimates).
* Opex/t was up ~2% YoY (~3% below estimates), led by ~10% increase in other expense per ton. EBITDA/t declined ~13% YoY to INR929, and OPM contracted 2.3pp YoY to ~17%. Depreciation increased ~4% YoY (-21% QoQ); while interest cost declined ~15% YoY. Other income declined ~77% YoY. Power sales from renewable sources contributed an incremental INR60-70/t to EBITDA.
* Cash balance stood at INR8.4b vs. INR17.7b as of Mar’26 and INR101.3b as of Mar’25.
Highlights from the management commentary
* Overall, trade volume declined ~2% YoY, and non-trade volume declined ~21%. It has witnessed healthy demand momentum in Jul’27, with trade volumes growing ~8% YoY.
* Kiln fuel stood at INR1.66/Kcal in 1QFY27 vs. INR1.59/INR1.61 in 1Q/4QFY26. The share of green power increased to ~34% from ~28%/32% in 1Q/4QFY26.
* Relatively lower volume share from the South market (10% of total volume), which is typically a higher clinker factor and higher-cost market, also supported overall cost reduction during the quarter amid elevated fuel prices.
Valuation and view
* ACEM’s 1QFY27 operating performance was broadly in line with our estimates. While volume growth remained subdued due to its deliberate focus on improving overall trade mix, the reduction in opex/t QoQ was encouraging amid high fuel prices and inflationary pressure. We believe that going forward, improvement in the cost curve, capacity utilization and volume growth, the integration of acquired assets, and the timely completion of ongoing expansions would remain key variables to watch out for.
* We estimate a CAGR of ~6%/14%/11% in consol. revenue/EBITDA/PAT over FY26-28, led by volume growth of ~6%. We estimate its EBITDA/t at INR839/ INR1,035 in FY27/FY28 vs. INR887 in FY26. ACEM currently trades at 18x/14x FY27E/FY28E EV/EBITDA. We value the stock at 16x FY28E EV/EBITDA to arrive at our TP of INR500. Reiterate BUY.
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