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Miss on All Fronts; Higher Cost Impacts Margins

Est. Vs. Actual for Q2FY27: Revenue – MISS; EBITDA Margin – MISS ; PAT – MISS

Change in Estimates post Q2FY27 (Abs.)

FY27E/FY28E: Revenue: -3%/-2%; EBITDA: -14%/-9%; PAT: -29%/ -13%

Recommendation Rationale

* Strong Capacity-led Growth: With capacity expected to increase from 109 mtpa to 119 mtpa by FY27-end and further organic expansion planned thereafter, Ambuja is well positioned to capture India's long-term cement demand growth while benefiting from operating leverage and higher asset utilisation. This enhanced capacity base is expected to underpin sustained growth momentum, with volumes and revenue projected to post a 9% and 11% CAGR over FY25–FY28E.

* Focus on Value Creation: The company's strategy of increasing trade sales, expanding premium cement penetration, and maintaining disciplined capital allocation is driving superior profitability rather than volume-led growth. Combined with a debt-free balance sheet and robust cash generation, this positions Ambuja to deliver sustainable earnings growth and stronger shareholder returns over the medium term.

* Corporate Simplification & One Cement Platform: The impending consolidation of ACC and Orient Cement into Ambuja Cements simplifies corporate structure, unlocks operational synergies across supply chains, and delivers earnings-per-share accretion.

Sector Outlook: Positive

Company Outlook & Guidance:Management reiterated that consolidated volume growth in H2FY27 will exceed the industry rate, guided by higher single-digit to low double-digit expansion. Capacity is targeted to reach 119 MTPA in FY27, 149 MTPA by FY29, and 155 MTPA by FY30. Furthermore, the proposed merger of ACC and Orient Cement into Ambuja Cements under the "One Cement Platform" has secured shareholder approval and is awaiting final NCLT sanction, with completion expected within FY27 to unlock structural tax, logistics, and operational synergies

Current Valuation: 16x FY28E EV/EBITDA (Earlier Valuation: 17x FY28E EV/EBITDA).

Current TP: Rs 425/share (Earlier TP: Rs 500/share).

Recommendation: We maintain our BUY rating on the stock.

Alternative BUY Ideas from our Sector Coverage: UltraTech Cement Ltd (TP: Rs 13,250/share), Dalmia Bharat (TP: Rs 2,045/share), JK Cements (TP: Rs 5,500/share), Shree Cement (TP: Rs 26.500/share)

Financial Performance

ACL reported weak performance, which was below expectations, primarily due to elevated cost pressures and lower volume growth on a YoY basis. EBITDA margin declined to 13.8% compared with 19.2% in the corresponding period last year and was below our estimate of 15%. Revenue remained flattish YoY, impacted by a decline in volumes. PAT stood at Rs 193 Cr, lower by 89% YoY and below our expectation of 572 Cr. Blended EBITDA per tonne stood at Rs 761, a decline of 27% YoY but higher by 18% QoQ. Blended realisation per tonne came in at Rs 5,507, up 1% YoY and down 1% on a QoQ basis. Cost/tonne rose 8% YoY to Rs 5507, mainly due to higher fuel and other expenses.

Outlook

* The company expects consolidated volume growth to outpace the industry in H2 FY27, targeting higher single-digit to low doubledigit expansion supported by accelerating trade volumes and calibrated, value-accretive institutional sales

* Installed cement capacity is expected to increase from 109 mtpa to 119 mtpa by FY27-end, driven by the commissioning of multiple expansion projects across key regions.

* The company maintained its target of reducing operating cost to around ?4,250/tonne by FY27-end through structural cost optimisation initiatives.

* Management expects to generate an additional ?250/tonne of savings through renewable energy, logistics optimisation, lower clinker factor, manufacturing efficiencies and fixed-cost optimisation.

* The company will continue to focus on premiumisation, increasing the share of trade sales, disciplined capital allocation and operational excellence to enhance profitability and strengthen competitive positioning.

* Management remains confident that its integrated growth strategy, structural cost leadership and disciplined execution will enable Ambuja Cements to deliver industry-leading profitability and sustainable long-term shareholder returns.

Valuation & Recommendation

* The stock is currently trading at 15.5/13x FY27E/FY28E EV/EBITDA. We maintain our BUY rating on the stock, with a target price of Rs 425/share, implying an upside of 20% from the CMP.

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