Ambuja Cements Q2 Results Review -Reclaiming Market Share With 140 Mtpa Target: Yes Securities

Yes Securities Report

Ambuja Cements Ltd. reported a healthy performance, where revenue grew by 8% YoY aided by +13% YoY volume growth which got offset by 4% YoY net sales realisation decline in Q2 FY24. Power cost/tonne declined by 40% YoY resulted in 16% YoY total cost/te reduction translates in Ebitda of Rs 1018/tonne to Rs 7.7 billion (+154% YoY) in Q2 FY24.

On account of higher other income, profit after tax exceeded expectations by 26% reaching Rs 6.4 billion in Q2 FY24 against Rs 1.5 billion in Q2 FY23. Ambuja Cements narrowed the efficiency gap with its peers by adopting cost-effective measures. Management has aspirational target of +Rs 1400/tonne of Ebitda by improving the efficiencies with a fresh set of investments in-

1. augmenting waste heat recovery system and renewable energy capacities,

2. Ramping up alternative fuel and raw material usage,

3. upgrading equipment and debottlenecking for kiln efficiencies,

4. Higher trade and premium sales,

5. Reduction in lead distance/logistic cost.

Under new management, Ambuja Cements targets to reach 140 million tonner per annum by FY28E to regain the lost market share. In this endeavor, Ambuja Cements plans to add 14 mtpa grinding unit and 12.75 mtpa clinker units with a capex outlay of ~Rs 70 billion (65% Ambuja Cements standalone).

Also, Sanghi industries Ltd. acquisition at enterprise value of Rs 50 billion ($100/tonnee) has a 6.1 mtpa cement/ 6.5 mtpa clinker capacity with 1000 mt of limestone reserve and its future expansion. This strategic move will increase the console capacity to 101 mtpa (45.5 mtpa standalone and excluding group capacity) by FY26E.

As a result, incremental volume from new capacities is expected from FY25E onwards, while standalone cement volume should grow at 10% compound annual growth rate over FY24- 26E complimented by master supply agreement.

The promoter group committed to infuse Rs 200 billion towards subscribing share warrants, of which Rs 50 billion has been received and the rest is expected to exercise on or before April 2024.

We valued Ambuja Cements on SOTP based valuation with a standalone entity valued at 14 times EV/Ebitda and Ambuja Cements' stake in ACC Ld. at 10 times EV/Ebitda on FY26E by adding Rs 40 billion net cash and Sanghi Industries at Rs 50 billion EV. Thus, we arrived at target price of Rs 487 with a 'Buy' rating.

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