Ambuja Cements Upgraded To 'Buy' By Nomura On Aggressive Capacity Expansion

Nomura Research has upgraded Ambuja Cements Ltd. to 'buy' from 'reduce' as the company continued its aggressive capacity expansion and its above-industry volume growth. The brokerage also raised the target price to Rs 780 per share from Rs 500 apiece earlier, implying a potential upside of 17.5% from the previous close.

The Adani Group's cement arm is set to become the third-largest player in southern India after the acquisition of Hyderabad-based Penna Cement Industries Ltd. Nomura's ratings outlook still does not take into account Penna's capacity yet, it said in a note on July 10.

Ambuja Cements will acquire Penna Cement Industries at an enterprise value of Rs 10,422 crore to increase its footprint in southern India. The acquisition will be fully funded through internal accruals and the deal is expected to be completed within three to four months.

The brokerage cited the company's aggressive capacity expansion, entry into newer markets, above-industry volume growth, increased brownfield optionality and cost-optimisation measures for outlook upgrade.

The cement major is in the process of adding 24-million-tonne capacity by the next financial year through a series of organic and inorganic expansions. Ambuja has a 20–25-MT brownfield optionality, suggesting around 10 MT of inorganic expansion to meet its ambitious capacity target of 140 MT by fiscal 2027, according to Nomura.

A lower heat consumption and higher share of green power to result in cost savings, it said. "We expect Ambuja to reduce its operating cost/tonne by Rs 300 by FY26."

Ambuja Cements' stock rose as much as 3.45% in early trade to Rs 687.95 apiece on the NSE. It was trading 2.86% higher at Rs 684 apiece, compared to a 0.11% advance in the benchmark Nifty at 9:27 a.m.

The share price has risen 62% in the last 12 months and 31% on a year-to-date basis. The relative strength index was at 57.

Twenty-four out of the 40 analysts tracking the company have a 'buy' rating on the stock, seven recommend a 'hold' and nine suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 1.5%.

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