ICICI Securities
Ambuja Cements (Buy)
Target: ₹464
CMP: ₹375.3
We expect Ambuja Cements to further improve its EBITDA/te (say by over ₹150/tonne over CY21-24) led by a better market mix (rising share of north) and increased cost efficiencies, and narrow its EBITDA per tonne gap when compared to it peers.
The recent Marwa-Mundwa expansion would not only enable Ambuja Cements to sustain its market share but will also improve overall EBITDA/tonne by over ₹50/tonne given higher profitability in north/west, better cost efficiencies and additional government incentives. Increasing share of WHRS (waste heat recovery) from 6MW to about 90MW by CY23 and higher efficiencies via measurement systems analysis with ACC could drive another over ₹100/tonne EBITDA/te expansion.
Other efficiency measures, including improving blending ratio, higher direct despatches (currently 60 per cent), source mix optimisation, fly-ash dryers, railway sidings at Rabriyawas could also drive additional cost synergies, in our view.
Accordingly, Ambuja Cement’s valuation gap vs larger peers may shrink further and its outperformance (over past two years) is likely to continue in the medium term. Maintain Buy with an unchanged target price of ₹464 (13x standalone CY23E EV/E).
Key risk: Lower demand/prices.