Prabhudas Lilladher has retained a "Buy" rating on Ambuja Cement (ACEM), revising the target price to Rs.708 from Rs.756. Despite pricing challenges affecting short-term revenue, the research house expects the company’s cost optimization strategies, strong volume growth, and increased capacity to support long-term performance. Ambuja Cement is well-positioned to benefit from government infrastructure projects and expects a CAGR of 14% in volumes through FY27.

Investment Overview

Target Price: Rs.708
Current Market Price (CMP): Rs.569
Potential Upside: +24%
Recommendation: Buy
Sector: Cement

Volume Growth Outpaces Revenue Due to Weak Pricing

Revenue Performance: Ambuja Cement’s consolidated revenue was nearly flat YoY, declining 1% to Rs.73.4 billion due to weak cement prices across regions.
Volume Growth: Volumes grew by 8.4% YoY to 14.2 million tons, supported by acquisitions such as Penna Cement. This growth in volumes, however, was partially offset by a 1.2% decline in net sales realization (NSR).

EBITDA and Margin Pressures

EBITDA Decline: Consolidated EBITDA fell 25% YoY to Rs.9.7 billion, with EBITDA per ton declining by 15% QoQ to Rs.686, driven by reduced NSR.
Cost Controls: Power, fuel, and freight expenses were managed effectively. Power and fuel costs declined 10% YoY to Rs.1,280 per ton, while freight costs fell 7% YoY to Rs.1,285 per ton.

Long-Term Cost Efficiency and Expansion

Targeted Cost Reductions: Ambuja achieved cost savings of Rs.150 per ton in FY24, progressing towards its FY28 goal of Rs.500 per ton.
Capacity Expansion: With ongoing projects, Ambuja Cement is on track to reach over 100 million tons per annum (mtpa) by FY25, with further expansion expected through new grinding and clinker units across India.

Capitalizing on Government Infrastructure and Demand Growth

Infrastructure Demand: Ambuja Cement is strategically positioned to benefit from increased demand driven by government projects in infrastructure and housing.
Market Share Goals: The company aims to raise its market share from 15% to 20% by FY28, supported by a high production volume and expanded distribution network.

Revised Financial Projections and Valuation

EBITDA Forecast: Prabhudas Lilladher revised Ambuja’s FY26/FY27 EBITDA estimates down by 7%, aligning with adjusted volume assumptions.
DCF Valuation: The revised target price of Rs.708 reflects a 17x EV/EBITDA multiple based on September 2026 projections, slightly lowered to account for recent pricing pressures.

Conclusion: Buy for Strategic Growth in Cement Sector

Prabhudas Lilladher recommends a "Buy" on Ambuja Cement, recognizing the company’s strategic advantage in capacity expansion, operational efficiencies, and alignment with government infrastructure initiatives. With a projected upside of 24%, Ambuja Cement offers an attractive long-term investment, backed by robust growth prospects in a challenging pricing environment.