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Synergy benefits visible; capex on track

Financial and valuation summary Ambuja reported marginally weak set of results compared to expectations on standalone basis for 3QFY24 as reported EBITDA at Rs8.5bn is 11% below our estimate. During the quarter, 12% of Ambuja’s clinker capacity was under maintenance which resulted in weak standalone performance. On consolidated basis, results were better than expected as operating costs declined more than anticipated. Multiple cost saving initiatives undertaken by the company utilizing group’s synergies resulted in commendable improvement in cost structure. The management also mentioned that they have utilized full potential of MSA benefits during the quarter which also resulted in lower costs. Volume growth for the next 2 years will be driven by Sanghi acquisition and new clinker capacity at Ametha (MP). The management has given roadmap to reach 110mn mt of capacity by FY27 which is 80% of its 140mn mt target set for FY28. We maintain our view that meaningful market share gains and high volume growth phase will be realized post FY26. Post recent uptick, the stock is trading at ~20x FY26 EV/EBITDA which we believe is rich and hence we downgrade the stock to Sell from Reduce with TP of Rs482.

3QFY24 result highlights

On standalone basis, Ambuja reported EBITDA of Rs8.5bn against expectation of Rs9.3bn. during the quarter, 12% of Clinker capacity of Ambuja (Standalone) was under planned maintenance resulting lower cost absorption. Volume growth was in-line with 6.3% YoY growth and realizations were up 3.4% QoQ. Standalone EBITDA/mt came in at Rs1038/mt against our expectation of Rs1131

Consolidated performance highlights

Consolidated volumes at 14.1mn mt increased by 2.9% YoY (Inline). Realizations improved by 1.7% QoQ (better than our estimate). Revenue at Rs81.3bn is up 3% YoY. EBITDA at Rs17.3bn is 8.5% ahead of our expectations on account of lower than expected costs. EBITDA/mt came in at Rs1,228/mt which is 8.7% ahead of our estimate of Rs1,130/mt. Operating costs improved by Rs137/mt on QoQ basis driven by lower P&F and employee costs.

Operating cost improvement visible

The management has delivered visible improvement in costs with further improvement expected through 1) lower power & fuel costs, 2) logistics optimization and 3) lower overheads. The company had earlier targeted to reduce operating costs by Rs400/mt. The company has already achieved more than Rs100/mt cost saving through better raw material and fuel procurement and higher share of green power. Further cost reduction of Rs90/mt through WHRS/green power, Rs50-60/mt through footprint optimization, and Rs50-60/mt through raw material procurement is expected.

Downgrade to Sell post recent run-up in the stock

We believe that Ambuja will be able to deliver 10-12% volume growth till FY26 (despite challenges on domestic demand front given the upcoming elections) and expect current profitability to continue. 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. We have upped our EBITDA estimates for the company for FY25/FY26 by 12.9%/11.7% to factor in improved cost structure. However, we downgrade the stock to sell on rich valuations with revised TP of Rs482 based on 15x Sep25 EV/EBITDA.

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