Motilal Oswal Maintains Buy Rating for Ambuja Cements, Sees Target Price of Rs 530

Motilal Oswal Research Report Highlights Ambuja Cements' Growth Potential

In a recent research report, Motilal Oswal highlighted Ambuja Cements' plans to significantly increase its capital expenditure (capex) over the next few years. The company aims to raise its capex from INR1.5 trillion in FY26 to INR7-8 trillion by FY30, with a potential scope to reach INR10 trillion.

The management emphasized that investments will remain disciplined, with each business pursuing projects that generate returns above the cost of capital. This approach is supported by India's large infrastructure capex gap, with annual spending of INR17 trillion compared to an estimated requirement of INR70 trillion. Additionally, there is significant scope for productivity improvement.

India's Cement Market: A Distinction Between Branded and Commodity

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The report notes that cement in India is still perceived and sold as a branded product, unlike many global markets where it is treated as a commodity. However, the management believes that this distinction will change over time, with cement eventually being sold as a commodity in India as well. This shift is expected to drive long-term volume growth potential, driven by low cement penetration in housing, infrastructure, roads, and logistics.

Operational Efficiency and Profitability

While industry returns remain below expectations, operational efficiency improvements can enhance profitability. The group has targeted an Return on Equity (RoE) of approximately 15% to be achieved over the next 2-4 years. This target is achievable through a reduction in lead distance and other operational efficiency measures.

Recommendation: Buy Rating with Target Price

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Motilal Oswal has a BUY rating on the stock with a target price of INR530, valuing the stock at 16x FY28E Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).