Morgan Stanley upgraded its rating on Ambuja Cements Ltd. to "equal-weight", with a target price of Rs 380 on the stock, as the company beat earnings estimates, though shares fell during trade on Thursday.
In a note on Wednesday, the brokerage highlighted three key takeaways from the cement company's fourth quarter results:
Expansion plans remain intact, but details are awaited.
Various cost-saving initiatives are in play.
Cash and cash flows should be enough to fuel growth plans.
Ambuja Cements Q4 Earnings Highlights (QoQ):
Revenue up 12.3% to Rs 4,128.5 crore vs Rs 3,675.6 crore (Bloomberg estimate Rs 3,920.1 crore).
Ebitda up 104% to Rs 626.1 crore vs Rs 305.9 crore (Bloomberg estimate Rs 883.1 crore).
Profit up 166% to Rs 369.9 crore vs Rs 168.9 crore (Bloomberg estimate: Rs 301.2 crore).
Margins at 15.1% vs 8.3% (Bloomberg estimate: 22.5%).
In terms of expansion, Ambuja Cements' focus remains on removing bottlenecks in existing capacities, the note said. It is committed to doubling grinding capacity to 140 mnt—ACC Ltd. and Ambuja Cements combined—over a five-year period. More details will be provided on this by the next quarter.
According to the note, the company's capex plans include investment in various cost-efficient projects, including waste heat recovery, alternative fuel and raw material. It predicts that the share of alternate fuel in the overall fuel mix should increase to 30% by 2027.
Ambuja Cements' vision is to become the "lowest cost-to-serve" company and it is looking for opportunities in raw materials, fuel and logistics, it said.
"The share of direct sales is increasing (up to 50% from 44% last quarter) and the share of rail transport rose," the report said.
The management highlighted that it would also explore coastal transportation opportunities in the future, leveraging the group's port business.
According to the report:
Risks To Upside For Ambuja Cements:
Strong capacity expansion announcement.
Better-than-expected industry demand, leading to better pricing and earnings growth.
Lower-than-expected costs, helped by a sharp decline in input prices.
Risks To Downside For Ambuja Cements:
Lower than expected margins—input prices remain elevated.
Any significant delay in organic or inorganic expansion plans.
No significant synergy benefits.
Shares of the company dropped as much as 7.29% to Rs 356.6, as of 2.45 p.m.
Out of the 46 analysts tracking the company, 22 maintain 'buy' rating, 16 suggest 'hold', and eight recommend 'sell' on the stock, according to Bloomberg data. The 12-month consensus price target implies an upside of 26.3%.
Disclaimer: Adani Enterprises is in the process of acquiring a 49% stake in Quintillion Business Media Ltd., the owner of BQ Prime.
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