Ambuja Cements, ACC Price Target Raised By Jefferies On Strong Q1 Ebitda Growth

Jefferies has increased the target price of Ambuja Cements Ltd. and its unit, ACC Ltd., after both reported strong Ebitda growth in the first quarter.

The brokerage increased the target price of Ambuja Cements to Rs 540 and ACC's to Rs 2325 while maintaining 'buy' ratings on both companies.

Ebitda growth during the April-June quarter was driven by strong volume potential and the commencement of efficiency improvement delivery, the brokerage said in an Aug. 2 note.

That prompted the brokerage to upgrade its target multiple for Ambuja Cements to 15 times from the previous 14 times its earnings.

Volume Driven Ebitda Growth

Ambuja Cements' standalone Ebitda grew 39% year-on-year to Rs 950 crore, driven by strong volumes and efficiency improvements, according to the brokerage. The company's consolidated Ebitda per tonne stood at Rs 1,080, the highest among Jefferies' Q1 results coverages so far.

Ambuja's Q1 standalone volumes grew 23% year-on-year, and consolidated volumes grew 9% year-on-year. The volume growth was lower than the estimated industry growth rate of mid-teens, and the number primarily represents Ambuja's lack of surplus capacity, the brokerage said.

However, the post-result management call stated that the entity saw no challenge in meeting the 10-15% volume growth for FY24.

Efficiency Improvement Initiatives

The company is targeting to increase its waste heat recovery system capacity to 175 megawatts by July 2024, Jefferies said. Both Ambuja and ACC are to move to the 86–87 megawatt capacity range by June 2024. Ambuja is also targeting a higher share of "alternative fuels and raw materials". It is also considering the installation of 200 megawatts of solar power, Jefferies said.

Ambuja's management has also stated that the company is looking at reductions in lead distance and that these cuts would add savings of Rs 100 per tonne. Other costs have been reduced due to parent group synergies, as ACC and Ambuja operations are being run as a single entity and execution team, thus trimming redundancies, Jefferies said.

Update on Capex

The company's maintained cement capacity of 140 million tonne per annum includes its clinker and grinding capacity expansion, said Jefferies.

ACC's Ametha project is expected to start production in Q2 FY24, and the company has ordered two clinker lines for its Bhatapara/Maratha plans, which include 42 megawatts of waste heat recovery systems and a facility for 50% alternate fuel. These projects are expected to be commissioned by FY26, Jefferies said.

Regarding general use cement expansion, Ambuja plans to add three units closer to its Bhatapara and Chandrapur lines. It is also looking at a 1 million tonne per year GU expansion at its Bhatinda plant.

All these projects will increase Ambuja's capacity from 67.5 million tonne per annum in FY23 to 83 million tonne per annum by FY26, according to Jefferies.

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