Buy Ambuja Cements Ltd for the Target Rs.730 by Motilal Oswal Financial Services Ltd
EBITDA above estimate; demand and pricing outlook positive
Estimate industry demand growth at ~7-8% in FY26 (vs. ~6-7% earlier)
* Ambuja Cements (ACEM) posted higher-than-estimated EBITDA, driven by higher-than-estimated realization (3% above estimate). Consol. EBITDA increased 53% YoY to INR19.6b (~8% beat), and EBITDA/t surged 27% YoY to INR1,066 (estimated INR1,002). Adj. PAT after MI grew ~15% YoY to INR7.3b (in line).
* Management indicated strong demand and pricing outlook, with cement demand estimated to grow ~7-8% YoY in FY26 (vs. ~6-7% earlier). The cement price improved in 1Q, and it will continue to follow a good pricing discipline. It is committed to achieving a total cost reduction of INR530/ton, with ~35-40% of the target already realized. The capacity expansion remains on track, with grinding capacity standing at 104.5mtpa currently, and another ~13mtpa will be commissioned in the remaining 9MFY26.
* We maintain our earnings estimates for FY26/27 and introduce our estimates for FY28 with this note. The stock trades fairly at 21x/17x FY26E/ FY27E EV/EBITDA. We value the stock at 20x Jun’27E EV/EBITDA to arrive at our TP of INR730. Reiterate BUY.
Consolidated volume up 20% YoY; Realization/t up ~2% YoY
* Consol. revenue/EBITDA/adj. PAT stood at INR102.9b/INR19.6b/INR7.3b (up 23%/up 53%/up 15% YoY, and up 4%/up 8%/up 2% vs. our estimates) in 1QFY26. Consol. Cement volume rose ~20% YoY to 18.4mt (in line). Blended realization/t increased 2% YoY/QoQ (3% above estimates).
* Opex/t was down ~3% YoY (up ~2% QoQ), led by ~8%/4% decline in variable costs/freight expenses. However, other expenses/t increased ~14% YoY. EBITDA/t increased ~27% YoY to INR1,066, and OPM surged 3.8pp YoY to ~19% (est. ~18%).
* Depreciation increased ~81% YoY driven by inorganic expansion. Other income declined ~28% YoY. The ETR stood at 27.2% vs. 28.4% in 1QFY25.
Highlights from the management commentary
* ACEM’s sales volume grew ~20% YoY to 18.4mt, with market share rising by 2pp to 15.5%, aided by inorganic growth. Capacity utilization during the quarter was at ~77-78% (on a consolidated level).
* The share of premium products increased to ~33% vs. ~29% of total trade volumes in 4QFY25. Further, trade volumes share increased 2.4pp to ~74%.
* Green power share increased by 9.7pp to 28.1%, and the target is to reach ~60% by FY28. This will help reduce power costs to ~INR4.5/kwh from ~INR5.9/kwh now. It commissioned 57MW of renewable power capacity.
Valuation and view
* ACEM’s 1QFY26 operating performance was above our estimates, driven by higher-than-estimated realizations. Opex/t was above our estimate, mainly led by the integration of Orient Cement from 1Q, which had higher costs. Going forward, the key monitorables will be: the company’s profitability trend (as in the past few quarters, except 4QFY25 and 1QFY26, its EBITDA/t has seen higher volatility), timely completion of its ongoing organic expansions, and the benefits from group synergies.
* We estimate the company’s consolidated revenue/EBITDA/PAT CAGR at ~15%/29%/31% over FY25-27, aided by robust expansions (both organic and inorganic). We estimate its EBITDA/t to increase to INR1,014/INR1,150/INR1,230 in FY26/FY27/FY28 vs. INR794 in FY25. ACEM (consol.) trades fairly at 21x/17x FY26E/FY27E EV/EBITDA and USD158/USD151 EV/t. We value the stock at 20x Jun’27E EV/EBITDA to arrive at our TP of INR730. Reiterate BUY.
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