Ambuja Cements, a company belonging to the Adani Group, has received a buy recommendation with a 12-month horizon from ICICI Direct, which has set a target price of Rs 610. This implies an upside potential of over 15% over the current share prices.
While the company’s second-quarter results fell short of estimates, with net sales growing over 13.4% year-on-year to Rs 3,670.4 crore, they declined consistently. EBITDA margin fell 885 basis points compared to the previous quarter to 8.3% (below the 12.3% estimate) due to rising electricity and fuel costs, which increased 63% year-on-year and 17.5% compared to the previous quarter. Profit after tax (PAT) declined 68.7% year-on-year and 86.8% quarter-on-quarter to Rs 137.9 trillion due to lower margins, according to the brokerage.
However, due to the strong market presence, favorable cost-benefit ratio and solid balance sheet, the brokerage believes that Ambuja Cements will show robust revenue growth in the years 2021 to 2023, despite the high base.
Furthermore, future stock performance will depend on three main factors:
- Expansion of production capacity, aiming to reach around 140 million tons in the next five years. New clinker production facilities in Marwar, Rajasthan (1.8 Mt cement, 3 Mt clinker) and a grinding unit (GI) in Punjab (1.5 Mt) are likely to be operational by the end of 2023. Additionally , capacity expansion in East (7 million cement, 3.2 million clinker), with a capital investment of Rs 3500 crore, is expected to be completed in Q4 2024.
- A solid balance sheet that will contribute to the company’s future growth.
- The group’s influence in the energy and logistics sector, which will help improve cost performance and supply chain efficiency.
The brokerage, based on a valuation of 21x EV/EBITDA for the year 2023, has set a price target of Rs 610 per share. (Disclaimer: Experts’ recommendations, suggestions, views and opinions are their own and do not reflect the views of Economic Times.)
