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Ambuja Cements Ltd. Q1FY25 volumes came at INR9.3mnt, down 2.1% QoQ but up 2.4% YoY, driven by high acceptance of premium products and Offering value added solutions beyond cement. Revenue for quarter came at INR45,157mn, down 5.5% QoQ and 4.5% YoY. Company had achieved above 79% utilization for Q1FY25. EBITDA/t for the quarter came at INR695/t, down 17.3% QoQ and 33.5% YoY. The decline in EBITDA/t was mainly led by lower realizations. Realization lower by 7% (INR249 vs INR267/bag) mainly due to election and tepid demand. PAT for quarter stood at INR5,707mn, up 7.2% QoQ but down 11.5% YoY. The QoQ spike in PAT is led by higher other income. EPS for the quarter was INR2.3.

* Expansion Plan: The company is currently undergoing a continuous expansion of its cement capacity by 23.4MTPA, with projects under execution expected to be completed by FY26E. Additionally, the board has approved an additional cement capacity expansion of 41 MTPA, targeted for completion by FY28E, which will bring the total capacity to 140 MTPA. Brownfield expansions at 14 sites are progressing well as planned, with a clinker facility of 11 MTPA and a cement capacity of 23.4 MTPA. As part of this, a 4 MTPA clinker line (Line 3) at Bhatapara in Chhattisgarh is expected to be completed by Q4FY25E, while a 6.4MTPA grinding facility (comprising 2.4MTPA at Sankrail, 2.4MTPA at Farakka, and 1.6MTPA at Sindri) is expected between Q3E and Q4FY25E. Additionally, preoperative work for a 28 MTPA grinding facility and a 22MTPA clinker facility is underway, with land acquisitions and statutory approvals currently in progress. This strategic roadmap aims to achieve a total capacity of 112 MTPA by FY26E and 140 MTPA by FY28E.

* Targeting total cost/t to reduce by 500-530/t by FY28E: Ambuja Cement is implementing various initiatives aimed at reducing its total cost/t by INR500-530/t by FY28E. The company is focusing on increasing the share of WHRS in its energy mix. As of September 2022, the WHRS capacity was 40MW, which the company plans to increase to 186MW by the end of FY25E. Currently, the WHRS capacity stands at 165MW. The share of green power, currently at 18.4%, is expected to improve to approximately 31% by FY25E and 60% by FY28E. This shift to greener energy sources is projected to reduce the overall cost of power by 33%, which will positively impact EBITDA. Specifically, the power cost is expected to decrease by INR90/t by FY28E. Additionally, the company is focusing on reducing freight and forwarding costs. To achieve this, they are targeting three key areas: reducing heat dispersion, optimizing warehouse operations, and improving railroad mix efficiency. One of their specific goals is to reduce the average primary road lead distance by approximately 100 km over time.

Valuation and Outlook:The GDP is expected to grow at a rate of 7-9% in FY25E, while cement demand is anticipated to rise by 8-9%, which is 1.2 times higher than the rate of capacity expansion. Ambuja Cement aims to reduce its total cost per ton by INR 530/t by FY28E. This goal is driven by substantial investments in green power initiatives, including WHRS, solar, and wind energy, as well as enhancements in alternative fuel and raw material (AFR) management, railway infrastructure, and fly ash handling systems. These strategic efforts are expected to significantly boost the company's profitability. The Government plans to invest approximately USD 3 trillion in infrastructure and housing development through ongoing initiatives like the 'Housing for All' scheme, the National Infrastructure plan, and the PM Gati Shakti National Master Plan. Additionally, the Budget for FY25E includes an allocation of Rs. 11.11 lakh crore for capital expenditure, which represents 3.4% of GDP. We expect Revenue/EBITDA to grow at a CAGR of 8.9%/22.5% respectively over FY24-FY26E. We value ACEM on a SoTP basis to arrive at a TP of INR707 by assigning 22.0x on FY26E EBITDA, downgrading our rating to REDUCE.

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