Buy Ambuja Cements; target of Rs 600: Motilal Oswal

Motilal Oswal's research report on Ambuja Cements

Ambuja Cements (ACEM)’s 3QFY25 consolidated EBITDA (adjusted for prior period incentives of INR8.3b) declined ~49% YoY to INR8.9b (-35% vs. est.), due to weak realization and higher opex/t (up to INR100-150/t related to acquired assets that are in the transition and ramp-up phase). EBITDA/t declined 56% YoY to INR537 (est. INR848). PAT (adjusted for the reversal of tax provisions) declined 50% YoY to INR4.1b (-28% vs. our estimate). Management indicated consol. volume growth of ~17% YoY, with ~10% of this growth driven by two major inorganic expansions (Sanghi and Penna Cement). Currently, both companies are in the transition and ramp-up phase, and the company is implementing various cost-reduction initiatives. It expects plant capacity utilization for both companies to increase 70%+ in FY26 vs. sub-40% utilization currently.

Outlook

We also reduce our valuation multiple to 18x EV/EBITDA (vs. 20x earlier), a 10% discount to UTCEM. ACEM (consol.) trades at 20x/15x FY26/FY27E EV/EBITDA. We maintain our BUY rating with a revised TP of INR600 (earlier INR750).