Ambuja Cement: We maintain our ADD rating on Ambuja Cements (NS:ABUJ) with a revised TP INR 395/share. During Q5FY23 (financial year moved to Mar vs Dec), it reported only 5% QoQ standalone volume growth (capacity constraints). Unitary EBITDA recovered INR 145/MT QoQ to INR 973/MT, led by continued opex reductions, which more than offset for lower NSR. Ambuja remains committed to doubling its consolidated capacity over the next five years and is working on various cost-reduction exercises to boost margins by an ambitious INR 300-400 per MT (aggressive guidance, in our view). Opex reduction and major capacity expansions remain key catalysts for valuation re-rating.
ACC (NS:ACC): We maintain BUY on ACC, with a revised TP of INR 2,110/share (11x its Mar-25E consolidated EBITDA. During Q5FY23 (financial year moved to Mar vs Dec), ACC’s EBITDA margin recovered a modest INR 70 per MT QoQ to INR 550 per MT. Weak pricing in the south reduced the benefits of opex moderation. The long-pending Ametha integrated plant is expected in Q2FY24E. The management is yet to announce major expansions in ACC. However, it is taking up various green energy initiatives which should drive margin expansion.
Ambuja Cement
Cost controls drive margin recovery QoQ
We maintain our ADD rating on Ambuja Cements with a revised TP of INR 395/share. During Q5FY23 (financial year moved to Mar vs Dec), it reported only 5% QoQ standalone volume growth (capacity constraints). Unitary EBITDA recovered INR 145 per MT QoQ to INR 973 per MT, led by continued opex reductions, which more than offset for lower NSR. Ambuja remains committed to doubling its consolidated capacity over the next five years. It is also working on various cost-reduction exercises to boost margins by an ambitious INR 300-400 per MT. Opex reduction and major capacity expansions remain key catalysts for valuation re-rating.
Q5FY23 performance: Capacity constraints and the shutdown of the Himachal plant slowed standalone sales volume to 5% QoQ. Purchase of traded goods rose to 9.2% of revenues in Q4 vs 5/3.8% QoQ/ YoY implying rising trade with ACC. Despite a 2% QoQ fall in NSR, unit EBITDA recovered INR 145 per MT (to INR 975 per MT) led by a 5% cool-off in unit Opex (after a similar fall in Dec-22), a positive surprise. Consolidated volumes, however, fell 2% YoY on lack of capacity and sales loss in HP. Consolidated unit EBITDA recovered 19% QoQ to INR 879 per MT (still down 11% YoY on high input costs).
Capex and other updates: Ambuja reiterated its plan to double group capacity to 140mn MT in the next five years. It is also working on initiatives to reduce its cost by INR 300-400 per MT in FY24E by optimizing logistics costs, energy costs, and other costs. We have reworked our Capex estimates for Ambuja factoring in only organic Capex (as against incorporating acquisitions early). We estimate Ambuja to add ~5mn MT cement capacity in FY24-25E (on a standalone basis) and most of its ongoing expansions to get commissioned FY26 onwards. We value the standalone cement business at 14x its Mar-25E EBITDA and the company’s 50% holding in ACC at a 20% discount to our target market cap for ACC, leading to SOTP's target price of INR 395/share.
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