Neutral Ambuja Cements; target of Rs 350: Motilal Oswal

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Motilal Oswal's research report on Ambuja Cements

Ambuja Cements (ACEM) is a leading cement player with an installed cement capacity of 31.5mtpa as of CY21. In this note, we analyze ACEM’s CY21 Annual Report (AR). The key highlights of our analysis are as follows: a) ACEM completed the expansion project at Marwar, Mundwa and announced the next phase of expansion in East India; b) its increased capex on development and efficiency to improve profitability and return ratios; and c) the management validated sustainability targets to reduce carbon emissions. The management estimates cement demand to grow at more than 7% YoY in CY22 backed by: a) structural demand from housing, rural, and infrastructure and b) pick-up in industrial/commercial capex. The management estimated an industry volume growth of 13% YoY in CY21 v/s 8.6% YoY in CY20.

Outlook

ACEM trades at 18.9x/15.1x CY22E/23E EV/EBITDA and USD222/USD217 CY22E/ 23E EV/ton, respectively. The stock has traded at an average EV/EBITDA of 12.8x over the last 10 years. We value it at 12.5x CY23E EV/EBITDA and 20% HoldCo discount for its holding in ACC to arrive at our TP of INR350. Our TP implies a potential downside of 9% from CMP. Hence, we maintain our Neutral rating on the stock. In the near term, ACEM’s stock price movement will be governed by news flows related to its promoter group Holcim’s exit from India.

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