IGI Logo

Reclaiming market share with 140MTPA target

Result Synopsis

Ambuja Cements (ACEM) reported a healthy performance, where revenue grew by 8% y/y aided by +13% y/y volume growth which got offset by 4% y/y NSR decline in Q2FY24. Power cost/te declined by 40% y/y resulted in 16% y/y total cost/te reduction translates in EBITDA of Rs1018/te to Rs7.7bn (+154% y/y) in Q2FY24. On account of higher other income, PAT exceeded expectations by 26% reaching Rs6.4bn in Q2FY24 against Rs1.5bn in Q2FY23. ACEM narrowed the efficiency gap with its peers by adopting cost-effective measures. Management has aspirational target of +Rs1400/te of EBITDA by improving the efficiencies with a fresh set of investments in 1) augmenting WHRS & RE capacities, 2) Ramping up AFR usage, 3) upgrading equipment & debottlenecking for kiln efficiencies 4) Higher trade & premium sales 5) Reduction in lead distance/logistic cost.

Under new management, ACEM targets to reach 140MTPA by FY28E to regain the lost market share. In this endeavor, ACEM plans to add 14MTPA GU and 12.75MTPA clinker units with a capex outlay of ~Rs70bn (65% ACEM standalone). Also, Sanghi industries (SNGI) acquisition at EV of Rs50bn ($100/te) has a 6.1MTPA cement/ 6.5MTPA clinker capacity with 1000MT of limestone reserve and its future expansion. This strategic move will increase the console capacity to 101MTPA (45.5MTPA standalone and excl. group capacity) by FY26E. As a result, incremental volume from new capacities is expected from FY25E onwards, while standalone cement volume should grow at 10% CAGR over FY24- 26E complimented by master supply agreement. The promoter group committed to infuse Rs200bn towards subscribing share warrants, of which Rs50bn has been received and the rest is expected to exercise on or before April’24. We valued ACEM on SOTP based valuation with a standalone entity valued at 14x EV/EBITDA and ACEM’s stake in ACC at 10x EV/EBITDA on FY26E by adding Rs40bn net cash and SNGI at Rs50bn EV. Thus, we arrived at TP of Rs487 with a BUY rating.

Result Highlights

* Revenue came 4% below YSECe to Rs39.7bn up by +8% y/y aided by volume growth of 13% y/y, although NSR corrected by 4% y/y in Q2FY24.

* Total cost/te largely came in-line with our est., declined by 16% y/y due to power / freight & other cost moderation by 40/10 & 33% y/y in Q2FY24.

* As expected, EBITDA came at Rs7.7bn up by +154% y/y translates in EBITDA/te of Rs1018 v/s YSECe Rs957/te in Q2FY24 due to better NSR than expected.

* Whereas EBITDA margin came in at 19.5% (18.7% YSECe) as compared to 8.3% in Q2FY23 and 20.1% in Q1FY24.

* Adj. PAT came at Rs6.4bn in Q2FY24 against Rs1.5bn in Q2FY23 and flat q/q aided by higher other income.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632