Buy Ambuja Cements; target of Rs 831: ICICI Securities

ICICI Securities research report on Ambuja Cements

Under Adani Group, Ambuja Cement (ACEM; consol) has narrowed the margin gap considerably versus peers, mainly led by cost control. And we believe, it has ‘just scratched the surface’ given its ongoing plan of significant green power addition and a resolve to boost efficiency in other areas by leveraging group synergies. While plans to add ~32mtpa capacity is in the works, the upcoming fund infusion of INR 150bn (promoter warrant conversion due in Apr’24) has potential to expedite (by organic and/or inorganic route) ACEM reaching the 140mtpa capacity target well ahead of its initial guidance of FY28 (76mtpa currently). Given the odds, ACEM comes across as a rare opportunity which makes a favourable investment argument irrespective of the sector’s outlook. Retain BUY; TP revised to INR 831 (vs. INR 668).

Outlook

Set amid the ongoing industry-wide race for capacity creation, the cushion of rising cost efficiency will likely give ACEM a leg up versus peers. With core RoE (excluding cash) seen sustaining at ~11-14% and the high odds of industry superior earnings growth over the medium term, we value ACEM consol. at 20x FY26E EV/EBITDA (SoTP earlier). Retain BUY with a revised TP of INR 831. (assuming 24% equity dilution post upcoming warrant conversion in Apr’24).