Cement: Divergent Q3 trends; re-iterate long term guidance

2 Feb 2024 , 10:23 AM

Ambuja consolidated was strong and in-line with estimates – Ebitda grew by 70% YoY driven by 10% YoY volume growth and balance through Ebitda/t improvement (+54% YoY to Rs1228). The standalone performance of the two companies saw divergent trend with ACC reporting beat; while Ambuja missed estimates. Based on Q3 performance, analysts of IIFL Capital Services upgrade ACC Ebitda by 10-11% and cut Ambuja standalone Ebitda by 7- 8% over FY24-26. Ambuja consol Ebitda saw marginal upgrade of 3% pa. Analysts of IIFL Capital Services value Ambuja at 14x FY26 Ebitda (TP: Rs550) and ACC at 11x FY26 Ebitda (TP: Rs2600). 

Consol numbers inline; Ambuja standalone miss offset by ACC: 

Ambuja’s consol Ebitda grew 70% YoY and 33% QoQ to Rs17.3bn – inline with estimates. The Ebitda growth was driven by – 1) volume growth of 10% YoY and 8% QoQ to 14.1m MT, and 2) Ebitda/t increase of 54% YoY and 23% QoQ to Rs1228. Though consol Ebitda was inline, standalone Ebitda of both companies surprised – ACC reported a 25% beat while Ambuja reported a 13% miss. Volume estimates were in-line for both companies, but divergent trend in costs led to surprise in profitability. Mgmt. shared that maintenance shutdown of multiple clinker lines in Ambuja (40% capacity) led to higher costs and the same is expected to reverse in Q4. 

Re-iterate long term guidance: 

Company re-iterated its target to achieve 140m MT by FY28 – post Sanghi Industries acquisition – Ambuja consol capacity have increased to 77m MT. Company already has 20m MT of projects under execution which would commission between H2FY25 to H1FY27. In addition, company has announced another 12m MT GU capacities – taking total capacities to 110m MT. It is likely to announce next phase of expansion over the next 6-9 months. On Ebitda/t – company maintains that it would achieve Rs1450 through cost optimisation. Of the Rs400/t estimates cost savings, company has realised Rs100-150/t; while the balance Rs250-300/t is targeted to be realised over the next 18-24 months. 

Tweak estimates: 

Based on Q3 performance analysts of IIFL Capital Services see 10-11% cut in Ambuja standalone Ebitda which is offset by 7-8% upgrade for ACC. On consolidated basis, Ambuja Ebitda see a marginal increase of 3% pa through FY25-26. Analysts of IIFL Capital Services value Ambuja at 14x FY26 Ebitda (TP: Rs550) and maintain ADD; and value ACC at 11x FY26 Ebitda (TP: Rs2600) and change the recommendation to ADD given limited upside at CMP.