ACC, Ambuja Cements shares: What analysts say on two Adani group stocks post March quarter results

Adani group firm Ambuja Cements reported a 2 per cent rise in the March quarter profit while subisdiary ACC recently logged a 40 per cent plunge in bottom line for the quarter. Yet Ambuja Cements and ACC numbers were broadly in line with analyst estimates. The key highlights for both cement makers were robust volumes and impressive cost savings.

The Ambuja Cements management has reiterated its key focus areas: doubling of capacity from 68 million tonnes (mt) to 140 mt in five years; Rs 300-400 per tonne improvement in FY24 Ebitda by optimising manufacturing and logistics cost; and enhancing sales and marketing initiatives to improve the topline. Analysts said the the group is looking to set up 40 mt clinker capacity (likely 10 lines of 4 mt each) and said equipment ordering is in advanced stage and is likely to be announced soon in a phased manner.

On ACC, Nuvama Institutional Equities said the quarterly results were decent, riding on margin recovery of 140 bps QoQ. While volumes grew 8 per cent YoY (10 per cent QoQ) despite the plant shutdown in Himachal Pradesh, realisations dipped 4 per cent QoQ. Lower-than-expected fuel and freight costs led to Ebitda beating estimates by 8 per cent. Ebitda per tonne at Rs 549 was broadly in line with estimates, Nuvama said.

"Like its subsidiary ACC, Ambuja Cements too delivered an impressive margin recovery (300 bps) on a QoQ-basis. Volumes grew 8 per ecnt YoY; cost control measures (including synergies with ACC), led to cost/tonne coming off 6 per cent QoQ. The group has planned a capex of Rs 7200 crore in FY24 towards capacity enhancement (26 mt) and process optimisation over the next few years," Nuvama said.

Nuvama has upped its target for Ambuja to Rs 458 from Rs 452  while it has cut its target on ACC to Rs 2,135 from Rs 2,197.

For Ambuja Cements, Emkay said it has broadly maintained its FY24-25 Ebitda estimates. But factoring in the reduction in ACC’s target price, it has revised our March 2024 target price for Ambuja Cements to Rs 415 per share from Rs 425), based on 15 times EV/E.​

"Given favorable valuations at the CMP (9 times FY25E EV/E), we maintain our Buy rating on the stock from a medium-term perspective," Emkay said on ACC while suggesting a target of Rs 2,050 on the stock.

Motilal Oswal said Ambuja Cements has set an ambitious target of achieving a capacity of 140 mtpa in the next five years against 67.5 mtpa at present. It believes that ACC and Ambuja Cements have approvals for 20 mtpa of clinker capacity expansion primarily in the East and West regions.

"Ambuja Cements and ACC (Adani group entities) are net cash positive companies, with a consolidated cash balance of Rs 11,500 crore as of Mar’23. Cash reserves, along with the remaining proceeds from warrants, will support their capex plans. Better clarity is needed on capex as the company has yet not placed orders for equipment. We believe that organic expansions will need more time and we have not considered significant expansions in our estimates (except 7 mtpa of Ambuja, which was disclosed in January 2022 by erstwhile management)," it said.

Motilal Oswal has a 'neutal' rating on Ambuja Cements as it finds valuations rich. The brokerage finds Ambuja Cements worth Rs 390.

"ACC’s growth plans and its cost-saving initiatives will be the key monitorables. There is still a lack of clarity regarding the commissioning of the UP grinding unit. Though the cash balance has improved sequentially, it has significantly dropped from last year. Apart from pressure on profitability, rise in other current assets (advance for coal) has led to a decline in cash balance," it said while suggesting a neutral rating on the stock with a target of Rs 1,990.