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Ambuja Cements Ltd>
  • CMP : 634.7 Chg : 1.60 (0.25%)
  • Target : 500.0 (40.85%)
  • Target Period : 12-18 Month

09 Feb 2023

Improved operational efficiencies via group synergies

About The Stock

Ambuja Cement (now Adani group conglomerate) is a large cement player with capacity of 31.5 MT across North (35%), South (24%), West (~20%), East (~21%) in India. It has a large marketing set-up & pan-India presence.

  • The upcoming new capacity in Punjab (1.5 MT) and eastern region (7.0 MT including clinker 3.2 MT) will enhance its cement capacity by ~8.5 MT to 40 MT. In phase II, the company plans to reach over ~50 MT capacity through capacity expansion in western region along with significant de-bottlenecking
  • The management plans to double its consolidated capacity to 140 MT (ACC + Ambuja) from current ~70 MT in the next five years
Q4CY22 Results:

Ambuja Cements’ financial performance for Q4CY22 improved sharply backed by improved operational efficiencies through group synergies.

  • Net revenues were up 10.4% YoY, 12.5% QoQ to ₹ 4128.5 crore, led by better sales volume
  • EBITDA margin rose 687 bps QoQ to 15.2% (vs. I-direct estimate: 12.2%). On per tonne basis, EBITDA/t was ₹ 813/t vs. I-direct estimate of ₹ 678/t
  • While the company incurred exceptional expenditure of ₹ 56 crore towards IT transition costs, better margins and higher other income led to net profit growth of 46% YoY, 167% QoQ to ₹ 369 crore
What should Investors do?

Strong brand with pan-India presence, cost efficient and robust balance sheet are key positives.

  • With aggressive expansion strategy and focus on cost efficiencies, we expect healthy revenue growth, going forward. Hence, maintain BUY rating
Target Price and Valuation

We value Ambuja at ₹ 525 i.e.15x FY25E EV/EBITDA.

Key Triggers for future price performance
  • The management plans to increase consolidated capacity to ~140 MT in next five years (i.e. at 16% CAGR). Promoter to make equity infusion of ₹ 20,000 crore for the said purpose
  • The new clinker capacity at Marwar Rajasthan (1.8 MT cement, 3 MT clinker) and grinding unit (GU) in Punjab (1.5 MT) to come on stream by end of CY23 while capacity expansion (7 MT cement, 3.2 MT clinker) in east (capex of ₹ 3500 crore) is likely to get completed by Q4CY24E
  • It has a strong b/s. Also, the group’s exposure into energy and logistics will help it to improve cost dynamics and gain supply chain efficiencies
Alternate Stock Idea:

In our cement universe, we also like UltraTech cement.

  • It is a market leader with strong brand in the retail segment
  • BUY with a target price of ₹ 8,050/share

Key Financial Summary

Particulars CY19 CY20 CY21 3 Year CAGR (%) FY23E* FY24E FY25E 3 Year CAGR (%)1
Net Sales 11,668.0 11,372.0 13,970.0 7.1 19,928.0 16,820.0 19,797.0 12.3
EBITDA 2,149.0 2,647.0 3,210.0 19.3 3,300.0 3,821.0 4,574.0 12.5
EBITDA (%) 18.4 23.3 23.0 - 16.6 22.7 23.1 -
Adjusted PAT 1,529.0 1,790.0 2,148.0 19.9 2,786.0 2,617.0 3,138.0 13.5
EPS (|) 7.7 9.0 10.8 - 14.0 13.2 15.8 -
EV/EBITDA - Adjusted 20.4 17.7 14.1 - 16.2 11.8 10.2 -
EV/T ($) - Consolidated 203.0 209.0 194.0 - 186.0 158.0 161.0 -
RoNW (%) 14.7 21.0 20.6 - 22.0 17.8 18.2 -
RoCE (%) 12.2 18.6 17.8 - 17.2 15.7 16.1 -
Source: Company, ICICI Direct Research

Key performance highlights

  • Sales volumes increased 7.5% YoY to 7.7 MT (vs. estimate of 7.3 MT) supported by an increase in blended cement (clinker factor reduced from 60.1% to 59.5%). Sales realisations were up 2.6% YoY, 3.7% QoQ to
    | 5362/tonne


  • On the cost side, power & fuel cost declined 21% QoQ to | 1573/tonne led by 14% reduction in kiln fuel cost (i.e. from | 2.84/000 Kcal to | 2.45/000 Kcal) with change in coal basket and group synergies on coal procurement


  • Freight cost was also down 7.9% YoY, 8.2% QoQ as group synergies of multi model logistics helped in optimising warehouse infrastructure. Direct sales also improved from 44% to 50%. These measures along with higher dispatches via rail helped to reduce lead distance from 263 km to 248 km

Key conference call highlights

  • The management of the ACC-Ambuja group addressed the first management discussion post its acquisition by the Adani group. The management said that the companies (ACC and Ambuja) saw a positive financial jump by levering synergies with each other and the Adani group
  • The company maintained its 140 MT capacity target and WHRS capacity of 190 MW by March 25 from 65 MW at present. AFR consumption has increased and will further improve in coming quarters. Total 30% AFR target by 2027
  • Growth levers: Three key levers for the companies would be: 1) improving efficiencies of existing plants; 2) explore group synergies mainly on the logistics front (+other operational infra); 3) growth and expansion: increasing utilisation, capacity expansion as well as de-bottlenecking will drive growth
  • While there are independent boards for ACC and Ambuja, the entire cement business (ACC+ Ambuja) is run by a unified management team. Advantages on scale and size are already being explored between both companies – merger between the two is not planned as of now
  • Cement pricing/ costs/ profitability: Kiln fuel cost has reduced from
    | 2.84/kcal to | 2.45/kcal in Q4CY22. Synergies between ACC and Ambuja and other Adani Group companies enabled better efficiencies during the quarter. The company would continue to explore these synergies to further optimise cost
  • Logistics benefits of group synergies (including ports), plans to use own wagons, and other operational infra would lead to better cost management in the coming quarters. Direct despatches from factory are being undertaken (improvement to 50% from 44%) and would be increased further
  • Royalty/technical know-how charges (earlier there during Holcim’s ownership) are not there as of now
  • Capacity targets: Remains committed on doubling capacity in five years mainly via greenfield/brownfield routes. Also, it is constantly evaluating M&A opportunities, if any
  • Ambuja ongoing expansion: Earlier announced 6.5 MT capacity expansion is expected to be completed within 18 months. Ametha capacity expansion will end by March 2023 and start commercial production in June-July 2023
  • Capex spend over the next 18 months is estimated at | 10,000 crore. The management mentioned that further details will be given in the next earnings call. Currently the company is focused on the cost reduction processes along with sale of trade and blended cement
  • The management predicted that the EBITDA margin is going to expand further in coming quarters with a four-digit EBITDA level
  • Coal procurement details: Ambuja Cements (ACL) has its own captive coal mine at Gare Palma, which caters to ~20-25% of coal requirement. ACC does not have any captive coal mine and has to depend on third party sourcing. The company is neither sourcing nor does it have any agreement with Adani for coal agreement. ACC has entered into the coal agreement in the middle of October 2022 at US$157/tonne for six months and will end by March-June 2023. Total coal procurement volume is 16 lakh metric tonnes, out of which 3 lakh metric tonnes have been received

Update on ongoing expansion

The company has laid out growth plans to increase its capacities in India with the target to become a 50 MT player from current 31.5 MT in phase I. In terms of regions, the company is exploring opportunities in markets of east and west India. The new clinker capacity at Marwar Rajasthan (1.8 MT cement, 3 MT clinker) and GU in Punjab (1.5 MT) is likely to come on stream by end of CY23 while capacity expansion (7 MT cement, 3.2 MT clinker) in east (capex of | 3500 crore) is likely to get completed by Q4CY24E. Apart from this, the company is also looking at significant debottlenecking opportunities across all its plants to further enhance their cement capacity.

Capital infusion to increase promoter shareholding to over 70%

The new board of Ambuja (parent company of ACC) has approved fund infusion of | 20,000 crore through promoter entity (Harmonia Trade and Investment) on a preferential basis. While Adani Group’s shareholding in Ambuja will increase to 70.3% vs. 63.2% at present, the effective shareholding in ACC will also increase from 38.2% to 41.8%.

Valuation & Outlook

While the short-term performance has got impacted in a high cost environment, the long-term growth trajectory of the company remains healthy with capacity expansion backed by a strong b/s. Hence, we maintain BUY rating with a revised target price of | 525 (implying ~15x FY25E adjusted EV/EBITDA).



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