IGI Logo

Volume growth disappoints; capex to kick-in 2HFY26

Ambuja reported marginally weak set of results compared to expectations on standalone basis for 2QFY24 as reported EBITDA at Rs7.7bn is 3% below our estimate. Results were disappointing on 2 counts of 1) weak volume growth of only 2% YoY on consolidated basis (after adjusting for volumes sold to ACC under MSA), and 2) capacity expansion largely coming in 2HFY26 which will delay volume growth for the company. ACEM continued to lose market share in 2QFY24 with subpar volume growth as heavy rains in Himachal and central region impacted volumes for the company in the month of July 2023. The management is confident of achieving 10-12% volume CAGR over the next 2 years, and we are also penciling in the same with Sanghi acquisition getting completed by 3QFY24. While operating costs were marginally higher on QoQ basis, the management reiterated its endeavor to reduce costs through reduction in P&F costs, freight costs and other expenses. We have sharply cut our EBITDA estimates for the company for FY24 and FY25 by 16% and 14% respectively as we believe that reduction in operating costs will be gradual and meaningful market share gain are only possible in FY26. Our revised TP based on 15x Sep25 EV/EBITDA now stands at Rs418 (Rs467 earlier). We maintain our Reduce rating on the stock.

2QFY24 result highlights

Ambuja reported marginally weak set of results with EBITDA of Rs7.7bn, 3% below our estimate. EBITDA/mt at Rs.1,020/mt is better than our estimate owing to strong growth in realizations. Volumes at 7.6mn mt improved by 7% YoY while we were estimating volumes of 8.1mn mt. Weak July 2023 on account of rains impacted overall volume growth for the company. However, realizations at Rs5,237/mt improved by 0.8% QoQ against our expectation of 1% decline. Despite strong realization growth, absolute EBITDA was lower as volumes were weak and operating costs remained elevated with 1.5% QoQ jump. P&F costs remained flat for the company on QoQ basis at Rs1,274/mt. Other expenses were controlled with both YoY and QoQ decline.

Consolidated performance highlights

On consolidated basis, Ambuja delivered just 2% volume growth and 5% revenue growth. While EBITDA/mt at Rs995 is better on YoY basis, it is down by Rs87/mt on QoQ basis. The company has undertaken multiple cost saving initiatives across P&F, freight and other expense line items and expects Rs400/mt improvement over next few years. On balance sheet front, advances for coal have been extinguished but receivable have increased from March levels. The management has guided for Rs75bn capex for this year for both entities in FY24.

10-12% volume growth and further improvement in efficiency expected; cash balance stable

The management has guided for 10-12% volume growth this year coupled with further improvement in cost structure through 1) lower power & fuel costs, 2) logistics optimization and 3) lower overheads. Consolidated cash balance at Rs117bn improved marginally from March 23 levels on account of higher operating cashflows. The management reiterated its vision to increase its capacity to 140mn mt and become lowest cost producer by 2028.

Maintain Reduce rating

We believe that Ambuja will be able to deliver 10-12% volume growth till FY25 (despite challenges on domestic demand front given the upcoming elections) and expect current profitability to continue. However, we also highlight that despite double digit growth for the industry in 1HFY24, Ambuja consolidated volumes have been subpar to say the least. We believe that volume growth going forward will not be achieved along with growth in profitability given intense competition. Major capacity growth for Ambuja will happen by 2QFY26 and till then volume growth will be driven by Sanghi acquisition wherein profitability is still uncertain. In this backdrop, we have cut our EBITDA estimates for the company by 16%/14% for FY24/FY25 respectively. We maintain our Reduce rating on the stock with revised TP of Rs418.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331