Ambuja Cements rallies 5%, hits all-time high in a range-bound market

Shares of Ambuja Cements hit an all-time high of Rs 586 as they rallied 5 per cent on the BSE in Monday’s intra-day, in an otherwise range-bound market. The stock of the Adani Group Company surpassed its previous high of Rs 585.45, touched on September 20, 2022. In comparison, the S&P BSE Sensex was down 0.01 per cent at 61,786 points at 02:19 PM.

In the past one month, the stock has soared 17 per cent amid management’s expectation that the recent cooling off in energy prices and post monsoon demand pick up would support the company in the coming quarters. In comparison, the benchmark index was up 7 per cent during the period.

For July-September quarter (Q3CY22), Ambuja Cements had reported a 94 per cent drop in its consolidated net profit to Rs 51.3 crore, as against Rs 891 crore reported last year. On a sequential basis, too, the company’s profit tanked 94 per cent from Rs 865 crore earned in the April-June period.

The consolidated revenue for the quarter at Rs 7,143 crore was higher by 7.5 per cent year-on-year from Rs 6,647 crore reported last year. Compared to the June quarter of the current fiscal, the revenue is lower by 11 per cent. The company reported revenue of Rs 8,033 crore in the June quarter. In Q2, EBITDA/ton declined 62 per cent YoY and 53 per cent QoQ to Rs 432, as the cement industry has been facing significant margin pressures resulting from steep rise in global energy prices.

“By taking advantage of the scope, and resources of the Adani Group, the management aims to expand more quickly and with greater impact to gain leadership position in Cement industry. With the equity infusion by the promoter group in the company, the expansion program will gather pace in the coming time,” said Ajay Kapur, CEO, Ambuja Cements, while announcing Q3 results on October 21.

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.

With aggressive expansion strategy and focus on cost efficiencies, analysts at ICICI Securities expect healthy revenue growth in CY21-23E despite high base. The strong brand with pan-India presence, cost efficient and robust balance sheet are key positives, the brokerage firm said with a ‘buy’ rating on the stock and a target price of Rs 610 per share.

The new clinker capacity at Marwar Rajasthan (1.8 MT cement, 3 MT clinker) and 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 the east (capex of Rs 3,500 crore) is likely to get completed by Q4CY24E. It has strong balance sheet. Also, the group’s exposure to energy and logistics will help them to improve cost dynamics and gain supply chain efficiencies are key triggers for future price performance