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Lower costs drive EBITDA beat; 2H volume to improve Capacity ramp-up to drive growth; expansion pipeline strengthens

* Ambuja Cements’ (ACEM) 2QFY27 EBITDA was above estimates (~5% beat), driven by lower-than-estimated opex/t. Consolidated revenue/EBITDA stood at INR92.0b/INR12.7b (flat/-28% YoY). It reported EBITDA/t of INR761 (down ~27% YoY; ~9% above estimates). Adj. PAT declined ~53% YoY to INR2.6b (~72% beat driven by lower depreciation and ETR vs. our estimates). * Management expects volume growth ahead of the industry in 2HFY27, led by capacity utilization ramp-up. Cost optimization through manufacturing efficiencies, renewable power, logistics, and fly ash integration remains a priority amid elevated fuel costs. The company commissioned 4.6mt of grinding capacity in 2Q and 5.6mtpa is scheduled to be commissioned in 2HFY27. It has also outlined the next phase of expansion, with 30.0mtpa/10.3mtpa of grinding/clinker capacity to be commissioned over FY28-29, at a capex of INR145b.

* We largely maintain our EBITDA estimates for FY27/FY28. PAT is expected to increase ~21% in FY27, driven by lower depreciation estimates. We value the stock at 15x FY28E EV/EBITDA to arrive at our TP of INR430. Reiterate BUY.

Volume down ~1% YoY; blended realization/t increases ~1% YoY

* Consol. revenue/EBITDA/adj. PAT stood at INR92.0b/INR12.7b/INR2.6b (flat/-28%/-53% YoY, and -4%/+5%/+72% vs. our estimates) in 2QFY27. Consol. volume declined ~1% YoY to 16.7mt (~3% below our estimates). Realization/t increased ~1% YoY (flat QoQ; ~1% below our estimates).

* Opex/t rose ~8% YoY (~2% below estimates), led by 19%/7%/7% YoY increase in other expenses/variable cost/freight cost. Staff cost/t declined ~7% YoY. EBITDA/t declined ~27% YoY to INR761, and OPM contracted 5.4pp YoY to ~14%. Depreciation/interest cost declined ~1%/4% YoY. Other income declined ~77% YoY.

* In 1HFY27, revenue/EBITDA/PAT declined 4%/23%/44% YoY to INR187.0b/ INR28.6b/INR9.7b. OPM contracted 3.8pp YoY to ~15%. EBITDA/t declined 19% YoY to INR841. OCF stood at INR29.0b vs. INR14.1b in 1HFY26. Capex stood at INR29.7b vs. INR35.6b in 1HFY26. Net cash outflow stood at INR710m vs. INR21.6b in 1HFY26.

Highlights from the management commentary

* Cement prices remained stable during the monsoon quarter, with INR10/bag price increase realized during the current month.

* Fuel cost increased to INR1.87/kcal in 2QFY27 from INR1.60/kcal in 2QFY26 and INR1.66/kcal in 1QFY27. The fuel mix improved with a higher share of domestic coal relative to high-cost petcoke. It indicated that spot fuel costs have increased to INR2.85/kcal, highlighting the potential for further fuel cost pressure.

* Capex is pegged at INR70b in FY27. Further, based on the next phase of expansion, annual capex is estimated at INR75b over the next two years.

Valuation and view

* ACEM’s 2QFY27 EBITDA was better than estimates, driven by lower opex/t. However, the company’s volume continued to be weak and lower than the industry growth. While it remains focused on structural cost optimization through renewable power, logistics efficiencies, and fly ash integration, elevated fuel costs and geopolitical uncertainties remain key challenges. The industry is witnessing continuous supply addition as leading players are aggressively expanding capacity till FY30. We believe the timely execution of planned capacity expansion and utilization ramp-up would remain key monitorables going forward.

* We estimate a CAGR of ~3%/10%/5% in consol. revenue/EBITDA/PAT over FY26- 28. Volume is estimated to be subdued at ~2% over FY26-28, as the company’s volume declined YoY in FY27. We estimate its EBITDA/t at INR857/INR1,022 in FY27/FY28 vs. INR887 in FY26. ACEM currently trades at 15x/12x FY27E/FY28E EV/EBITDA. We value the stock at 15x FY28E EV/EBITDA to arrive at our TP of INR430. Reiterate BUY.

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