Ambuja Cements shares rise after Q2 results; here's what analysts say on the Adani Group stock

Shares of Ambuja Cement Ltd rebounded in Thursday's trade after the company witnessed a strong performance in the quarter ended on September 30, 2023. Despite a strong performance, analysts continued to remain mixed on the Adani Group cement stock.

Ambuja Cements' Q2FY24 net profit surged 751 per cent on a year-on-year (YoY) basis to Rs 792.96 crore, compared to a net profit of Rs 93.18 crore in the same quarter previous year. The bottomline growth was mainly driven by a rise in other income and lower expenses.

Ambuja's revenue from operations stood at Rs 7,423.95 crore, up 4.10 per cent YoY from Rs 7,131.39 crore in the quarter a year ago. The company said its EBITDA stood at Rs 1,302 crore, driven by operational excellence and cost saving projects, with EBITDA margin expanded by 12.9 percentage points to 17.5 per cent from 4.6 per cent.

Following the earnings announcement, Ambuja Cements shares rose 3 per cent to Rs 420 per share, with a market capitalization close to Rs 83,500 crore. The scrip had settled at Rs 406.75 in the previous trading session Wednesday, falling about 5 per cent.

Brokerage firms have divided views on Ambuja Cements as some analysts have upgraded the stock expecting it to deliver a strong operation performance in next two fiscal years after capex and acquisition of Sanghi Investors. However, others believe the current muted financials and delayed timelines of acquisition may weigh on the stock.

Ambuja Cement delivered 7 per cent YoY volume growth in Q2FY24 with EBITDA per tonne at Rs 1,018. The company expects clinker capacity addition of 8 MTPA in FY26 and grinding capacity addition of 10.6MT and 4.6MT in FY25 and FY26, respectively. This, along with the acquisition of Sanghi Industries provides ample headroom for growth, said Nuvama Institutional Equities.

"The company is also making steady progress on the cost optimization front. The 12 per cent decline in the stock over the last quarter and recent cement price hikes have resulted in valuations being attractive; consequently, we are upgrading Ambuja Cement to 'buy' from 'hold' with a revised target price of Rs 481," Nuvama said.

Ambuja Cements 2QFY24 consolidated EBITDA was much below our estimates, mainly led by lower volumes. Consolidated volume growth suggests that the company has underperformed peers and lost market share. Firm prices and deflating energy costs to elevate margins in 2HFY24, said Kotak Institutional Equities.

"The company’s expansion plans are witnessing delays and revised timelines suggest back-ended commissioning over FY2024-26E, whereas high utilization should restrict volume growth over FY2024-26E. We revise our fair value to Rs 350, from Rs 355 and maintain a 'sell' rating on the stock," Kotak added.

Overall revenue came in lower than estimates due to reported volume decline of 14 per cent YoY. The acquisition of Sanghi Cements will expand the company's market reach in Gujarat and coastal markets. Focus is on increasing EBITDA, optimising warehouse space and balancing rail & road transport to reduce costs and increase margins, said Nirmal Bang Institutional Equities.

"Despite having a high base, we anticipate robust revenue growth during FY24-FY25. To account for the capacity expansion (organic and SIL acquisition), we have increased our FY24E and FY25E EBITDA estimates by 3 per cent and 19 per cent, respectively and EPS estimates by 6 per cent and 17 per cent, resulting in a revised target price of Rs 602 with a buy rating," it said.

The foundation for long-term economic growth remains robust, bolstered by various key factors- the growing middle class plays a crucial role as it is expanding rapidly and driving significant consumer spending, with implementation of cost optimization and robust capacity addition plans by the promoter Adani Group, said Choice Broking with an 'add' rating with a target price of Rs 450.

Among global brokerages, Jefferies and Citi have maintained a buy rating Ambuja Cements with a target price of Rs 540 and Rs 500 per shares respectively, while Morgan Stanley is 'equal-weight' on it with a target price of Rs 390 apiece.

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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