Citi cuts target price on Ambuja Cements but still sees over 20% upside in stock

The brokerage pointed to the market share loss during the quarter and noted that the management expects volumes and EBITDA per tonne to witness an upside.

Citi explained that it has a buy call on the stock on the back of Adani’s ambitions to double capacity as most near-term capex appears to be in Ambuja. It also expects upsides from cost efficiencies as the cement maker expects Rs 1,400-1,500/t EBITDA improvement.

The brokerage also believes that there would be a favourable swap ratio for the firm should there be a merger with ACC. It, however, highlighted the pending clarity on the alignment of grinding capacities with clinker.

Citi expects the stock to be range-bound in the near term.

Morgan Stanley, meanwhile, has an equal-weight stance on Ambuja Cements with a target price of Rs 390 though it said both standalone and consolidated Q2 EBITDA was weaker than expected. The brokerage said the EBITDA came weaker given weak volumes and realisations.

It said, that while Ambuja’s medium-term expansion plans are intact, the execution of various initiatives is key.

Morgan Stanley also expects near-term growth to remain challenging but sees risk-reward as balanced on a relative basis.

Yes Securities, on the other hand, noted that under the new management, the cement maker targets to reach 140 million tonnes per annum (MTPA) by the financial year 2027-28 to regain the lost market share.

“In this endeavour, Ambuja plans to add 14MTPA GU and 12.75MTPA clinker units with a capex outlay of Rs 70 billion (65% ACEM standalone). Also, Sanghi Industries (SNGI) acquisition at EV of Rs 50 billion ($100/te) has a 6.1MTPA cement/ 6.5MTPA clinker capacity with 1000MT of limestone reserve and its future expansion,” the brokerage said.

Yes Securities added that this strategic move will increase the console capacity to 101MTPA (45.5MTPA standalone and excl. group capacity) by the 2025-26 fiscal.