Brokerage Firm Prabhudas Lilladher Bullish on Ambuja Cement, Sets Target Price of Rs 524

Ambuja Cement Posts Weak Q4 Performance, Guides for FY27

Ambuja Cement (ACEM) has reported a disappointing fourth quarter (Q4) operating performance, impacted by several factors. The company's operating performance was affected by lower ramp-up and higher repairs at acquired assets, softer volume growth of 7% year-over-year (YoY), and elevated costs on branding, fuel, and freight.

The cement net sales realisation (NSR) marginally increased despite price hikes in regions and a higher premium cement share of approximately 36%. However, raw material (RM) and other costs rose due to higher fly ash and polypropylene (PP) bags inflation, while freight costs were impacted by plant shutdowns, leading to a cost increase to approximately INR4,500 per ton. As a result, earnings before interest, taxes, depreciation, and amortisation (EBITDA) per ton declined to INR728 (Prabhudas Lilladher estimate: INR771).

Management has indicated that Q4 costs represent a peak, with a reduction expected ahead, while guiding for approximately 8% volume growth in Fiscal Year (FY) 2027. After two years of underperformance on execution and profitability, ACEM management is recalibrating its approach by prioritising the utilisation of existing assets over new additions (new project internal rate of return (IRR) of approximately 18%), recalibrating at existing integrated units to reduce lead distance, and continuing to focus on cost reduction.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Revised Estimates and Outlook

We have reduced our FY 2027E and FY 2028E EBITDA estimates by approximately 11% and 10%, respectively, mainly due to lower volume assumptions. We expect ACEM's volume/EBITDA to deliver a compound annual growth rate (CAGR) of 8% and 23% over FY 2026-28E.

Valuation and Recommendation

At the current market price (CMP), the stock is trading at an enterprise value (EV) of 14.8x and 12.4x of FY 2027 and FY 2028 EBITDA, respectively. We maintain a 'BUY' rating with a revised target price (TP) of Rs 524 (Rs 598 earlier), valuing the company at 15x EV of March 2028 EBITDA.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline