'Juggernaut unleashed': This Adani stock has 15% upside potential, says Nomura India

Nomura India has upgraded the Adani group stock Ambuja Cements Ltd to 'Buy' and raised its target multiple for the stock to 19 times from 14 times earlier to factor in aggressive capacity expansion, entry into newer markets, above-industry volume growth, increased brownfield optionality, and cost-optimisation measures.

In a note titled 'Juggernaut unleashed', Nomura India said Ambuja Cements (consolidated) is in the process of adding 24 mt capacity by FY26 through a series of organic and inorganic expansions.

"Our FY24-26F volume/Ebitda CAGRs of 13 per cent/28 per cent are slightly above Ultratech’s. We now model Ambuja Cements on a consolidated basis, instead of standalone, and do not incorporate Penna’s capacity yet. Our FY25/26F Ebitda estimates are Rs 7,200 crore/Rs 10,300 crore; our FY26F Ebitda is in line with the Bloomberg consensus estimate. As a result, we raise our one-year forward target EV/Ebitda multiple to 19 times against 17 times for Ultratech) to reflect further capacity expansion (Penna)," it said.

Nomura India has upped its target price on Ambuja Cements to Rs 780 from Rs 500 earlier. On Thursday, Ambuja Cements shares were up 1.93 per cent at Rs 677.40. At this price, Nomura India's target price still suggests 15 per cent potential upside.

Ambuja is in process of acquiring Penna Cement (unlisted) with a 9 mt per annum capacity, implying a 14 per cent capacity CAGR over FY24-26F against 6 per cent and 9 per cent for the industry and Ultratech, respectively. After the completion of Penna’s acquisition, Ambuja (consolidated) is set to become the
third-largest player in Southern India behind only Ultratech and Ramco.

"Sanghi and Penna also provide brownfield optionality to Ambuja with 823MT and 610MT of limestone reserves, respectively. We believe these acquisitions should offset ACC’s lack of brownfield optionality," Nomura India said.

In May 2022, the Adani group and Holcim signed a share purchase agreement for Rs 50,181 crore ($6.3 billion) to buy Holcim's full investment in Ambuja Cements and ACC. This allowed the Adani group to enter India's cement market.