IGI Logo

Beat On All Fronts; Retain BUY

Est. Vs. Actual for Q1FY26: Revenue – BEAT; EBITDA Margin – BEAT; PAT – BEAT

Change in Estimates post Q1FY26 (Abs.)

FY26E/FY27E: Revenue: 4%/4%; EBITDA: 0%/1%; PAT: -3%/3%

Recommendation Rationale

• Capacity Expansion to Drive Volume and Revenue Growth: The company is increasing its capacity from 104.5 MTPA (including 8.5 MTPA from Orient Cement) to 118 MTPA by FY26. It is also targeting 140 MTPA by FY28 through additional expansion. This capacity growth is expected to support sustained momentum, with volume and revenue projected to grow at 11% and 12% CAGR over FY24–FY27E.

• EBITDA Margins Expected to Expand: During the quarter, EBITDA margin improved to 19.1% driven by better realisation and robust volume growth. Efficiency gains have reduced costs by Rs 150 per tonne. The company targets an additional Rs 300–350 in cost savings by FY28 through operational improvements—lowering the clinker factor, cutting logistics expenses, increasing green power use, boosting blended cement sales, and expanding EBITDA margins. We project EBITDA margins to rise to 20%-21% by FY27E. The company aims to reduce production costs to Rs 3,850 per tonne and achieve EBITDA/tonne of Rs 1,500 by FY28.

• Cement Sector Consolidation Enhances Competitive Advantage for Big Players: Between 2013 and 2024, large players increased their market share from 46% to 57%. By FY27–28, it is expected to rise further to 65%–70%. As consolidation and capacity expansion among top players accelerate, market share gains will continue, supporting stronger cement pricing, better economies of scale, and improved supply chain efficiency. As the 2nd leading player, the company is well positioned to capitalise on this trend over the medium to long term.

Sector Outlook: Positive

Company Outlook & Guidance: Strong focus on volume expansion, premiumization, and pricing power, coupled with cost reduction, operational excellence, and synergies between the cement businesses and the Group, will help improve profitability in the coming quarters. Strong infrastructure demand and ongoing needs from the housing and commercial sectors are anticipated to boost cement demand in FY26. Strategic investments in roads, railways, and urban and commercial amenities are poised to drive robust growth. The company expects industry demand in FY26 to grow in the range of 7%-8%. Prices are currently stable and are expected to trend in a positive direction.

Current Valuation: 17x FY27 EV/EBITDA (Earlier Valuation: 17x FY27 EV/EBITDA).

Current TP: Rs 660 /share (Earlier TP: Rs 655/share).

Recommendation: We maintain our BUY rating on the stock. Alternative BUY Ideas from our Sector Coverage: UltraTech Cement Ltd (TP13,840/share), Dalmia Bharat (TP-2,550/share), ACC Ltd (TP-2,260/share), Birla Corporation (TP-1560/share)

Financial Performance

ACL reported results exceeding expectations, driven by higher volume, better realisation QoQ, and the benefit of operating leverage. The company reported an EBITDA margin of 19.1% against 15.4% YoY (expectation 17.3%). It posted a 24% YoY revenue growth, supported by a 20% volume growth to 18.4 MTPA, attributed to increased trade volumes and higher sales of premium products. ACL's blended EBITDA per tonne stood at Rs 1,065, up 32% YoY and higher than our expectation of Rs 927/tonne. Blended realisations per tonne were Rs 5,591, up 6% YoY/QoQ. Cost per tonne was higher by 2% YoY at Rs 4,526. The company reported a profit of Rs 787 Cr, up 22% YoY and higher than our expectation of Rs 535 Cr.

Outlook

The company is in the process of consolidating its recently acquired assets—Penna Cement, Sanghi Industries, and Orient Cement—to drive operational efficiency and unlock synergies. These assets are expected to contribute meaningfully to overall performance in the coming quarters. Its capacity expansion plans remain on track, aligned with committed timelines, and are likely to aid in market share gains across key regions. Backed by a robust pan-India presence, ongoing cost optimisation initiatives, and group-level integration benefits across the Adani portfolio, the company is well-positioned to sustain its growth momentum. Furthermore, the government’s continued thrust on infrastructure and affordable housing, coupled with increased private sector capex and buoyant real estate demand, provides a strong macro backdrop. These factors reinforce expectations of ACL delivering industry-leading performance over the medium term.

Valuation & Recommendation

The stock is currently trading at 17.5x/15x FY26E/FY27E EV/EBITDA. We maintain our BUY rating on the stock, with a target price of Rs 660/share, implying an upside of 11% from the current market price (CMP).

Key Concall Highlights

• Capacity Expansion: ACL is set to expand its consolidated capacity from 104.5 mtpa to 140 mtpa by 2028, with ongoing projects expected to take the total capacity to 118 mtpa by FY26. This expansion is aligned with the group’s long-term strategic roadmap and is aimed at solidifying its leadership in key regional markets.

• Orient Cement Integration: The company has entered into a Master Supply Agreement (MSA) with Orient Cement, through which the legacy brands have been rebranded under the Ambuja and ACC umbrella. The current focus is on enhancing operational performance and asset utilisation, with any future expansion plans deferred to FY27.

• Volume Performance: ACL reported 16% YoY volume growth (clinker + cement) during the quarter. The trade mix stood at 74% while non-trade accounted for 26% on a consolidated basis. Premium products contributed 33% of trade sales, and blended cement represented 88% of total volumes. The company targets increasing premium cement contribution to 35%. It anticipates industry demand to grow at a 7-8% CAGR till FY30, with capacity additions at 6% CAGR, indicating a favourable supply-demand balance.

• Pricing Trends: Blended realisation improved by 6% YoY to Rs 5,591/tonne, supported by stable-to-improving pricing dynamics. Cement realisations were up 4% QoQ, and the company expects pricing momentum to remain positive going forward. • Power & Fuel Efficiency: ACL achieved a 3% QoQ reduction in fuel cost/tonne, with kiln fuel cost decreasing to Rs 1.59/kcal from Rs 1.74/kcal. This improvement was driven by a diversified fuel basket and operational synergies within the Adani Group. Further reductions are expected through ongoing fuel mix optimisation.

• Green Energy Transition: Green power usage increased to 28% and is targeted to reach 60% by FY28. This transition is expected to reduce power costs by 33%, supporting margin improvement and ESG goals.

• Freight Management: Freight costs declined 3% Yo to Rs 1,305/tonne, aided by network rationalisation, warehouse infrastructure optimisation, and digital initiatives. The company plans to further reduce lead distance by 100 km to enhance logistical efficiency.

• Other Operating Costs: Other expenses increased by 28% YoY to Rs 788/tonne, primarily due to enhanced marketing activities for both existing operations and newly integrated assets.

• Balance Sheet & Liquidity: ACL maintains a robust balance sheet with a net worth of Rs 66,436 Cr. The company remains debt-free with Crisil AAA (Stable) and Crisil A1+ ratings. Cash and cash equivalents stood at Rs 3,000 Cr, post utilisation for the Orient Cement acquisition and ongoing capex.

• Capex Outlook: FY26 capex is guided at Rs 10,000 Cr. The expansion from 100 mtpa to 140 mtpa will be funded entirely through internal accruals and operational cash flows, reflecting strong cash generation and disciplined capital management.

Key Risks to Our Estimates and TP

• Lower realisation and demand in its key market and a delay in capacity expansion.

• Higher input costs may impact margins.

For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home SEBI Registration number is INZ000161633