Ambuja Cements surges 3% after Nomura's double upgrade to 'buy'

Nomura raised its price target for Ambuja's stock from Rs 500 to Rs 780.

Shares of Ambuja Cements soared over 3 percent on July 11 after brokerage firm Nomura double upgraded the cement manufacturer to a 'buy' rating, factoring in the company's aggressive capacity expansion.

Along with this upgrade, the brokerage firm has raised its price target for Ambuja's stock from Rs 500 to Rs 780, a significant increase of nearly 56 percent.

Nomura attributed this sharp rise in the price target to Ambuja's entry into newer markets and its industry-leading volume growth.

Ambuja Cements is in the process of acquiring Penna Cement for Rs 10,422 crore, having a capacity of 9 million tonnes per annum. "This acquisition is expected to result in a 14 percent compound annual growth rate (CAGR) in capacity for Ambuja over FY24-26, compared to 6 percent for the industry and 9 percent for Ultratech," Nomura said.

Ambuja's recent acquisitions of Penna and Sanghi Industries not only gave it an entry point into newer markets but also made it the third-largest cement player in the South India market. In addition to that, these acquisitions also provide Ambuja with substantial brownfield optionality due to their large limestone reserves.

Nomura noted that this increased brownfield optionality, along with Ambuja's cost-optimisation measures, contributed to the boost in its price target. Ambuja Cements targets to reduce its operating cost per tonne by Rs 300 by FY26.

Also, Nomura believes that lower heat consumption and a higher share of green power will also help increase savings for Ambuja Cements. Additionally, Nomura sees the potential for another round of inorganic expansion for Ambuja Cements, further enhancing its market position and growth prospects.

At 09.29 am, shares of Ambuja Cements were trading at Rs 684.55 on the NSE.