Buy Ambuja Cements Ltd For Target Rs. 480 by Choice Institutional Equities
H2FY27 earnings recovery and ACC–Orient integration to strengthen growth outlook
We retain our ‘BUY’ rating on Ambuja Cements (ACEM) with a target price of INR 480/share. This would be supported by an expected recovery in volume growth of higher single-digit YoY and profitability in H2FY27, alongside structural improvements in product mix, operating efficiency and capacity expansion. While near-term earnings remain exposed to elevated fuel and logistics costs, we believe the company’s value-led growth strategy and planned integration of ACC and Orient Cement provide visibility on medium-term earnings growth.
Our positive stance on ACEM is underpinned by:
(1) We anticipate FY27E volume to reach at 77.1 Mnt, supported by better demand in H2FY27
(2) Structural cost-optimisation, with management reiterating its FY27 cost target of INR 4,250/t
(3) Premiumisation-led realisation improvement
(4) Capacity expansion and operating synergies, with the ongoing commissioning and ramp-up of grinding capacity, planned addition of ~30 MTPA cement, ~10 MTPA clinker capacity and the proposed merger of ACC and Orient Cement.
We expect earnings momentum to improve progressively in H2FY27 and beyond, supported by volume recovery and a better pricing environment. We forecast ACEM EBITDA to expand at a CAGR of 11.7% over FY26–29E, supported by our assumption of volume growth at 3.0%/7.0%/8.0% and realisation growth of 2.5%/1.0%/0.5% in FY27E/FY28E/FY29E, respectively.
We value ACEM using an EV/CE framework, assigning a 1.8x multiple to FY28E, arriving at a 1-year forward target price of INR 480/share. We retain our ‘BUY’ rating, as we believe the current valuation framework captures the company’s medium-term growth potential. The growth will be aided by capacity expansion, premiumisation, cost-optimisation and the proposed integration of ACC and Orient Cement, despite near-term profitability headwinds.
Q2FY27: Cost pressure weighs on margin
ACEM reported Q2FY27 revenue and EBITDA of INR 91,970 Mn (including government grants of INR 310 Mn), (+0.2% YoY, -3.2% QoQ) and INR 15,930 Mn (-27.9% YoY, -20.0% QoQ) vs CIE estimate of INR 95,110 Mn and INR 12,582 Mn, respectively. Total volume for Q2 stood at 16.9 Mnt (vs CIE est. of 17.4 Mnt), up 1.2% YoY and down 2.3% QoQ
Blended realisation/t (including CLC volume) came in at INR 5,442/t (-0.9% YoY, -0.9% QoQ), which is lower than the CIE estimate of INR 5,464/t. Total cost/t came in at INR 4,690/t (+5.7% YoY, +2.6% QoQ). EBITDA/t (including CLC volume) came in at INR 752/t, down 28.7% YoY and down 18.1% QoQ.
Key Risks:
* Volatile geopolitics:
Possible prolonged geopolitical disruption could lead to an increase in petcoke price, resulting in higher input cost and margin pressure.
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SEBI Registration no.: INZ 000160131
