Ambuja Cement rating: Maintain ‘buy’ with unchanged target price of Rs 255

By: |
August 28, 2020 5:00 AM

ACEM plans to set up WHRS plants at Darlaghat and Bhatpara (19.5MW at each location) at a capex of Rs 3.8bn by Q4CY21. Subsequently, the company may set up WHRS plants at Maratha and Ambujanagar in addition to solar plants totalling 40MW.

ACEM currently trades at an attractive valuation of 8.3x CY21E EV/E (for consolidated capacity of ~66mnte).

Ambuja Cements’ (ACEM) various cost optimisation initiatives coupled with MSA synergies with ACC under Neeraj Akhoury, MD&CEO (also India head, LafargeHolcim) could achieve sustainable cost reduction (at least 15-20% of CY19 Ebitda/te, in our view) over the next few years.

Commissioning of 3.1mnte clinkerisation plant at Marwa-Mundwa by H1CY21E would not only lend better volume visibility, but also improve overall profitability. With higher profitability, valuation gap vs peers may narrow. We maintain our CY20E-CY21E Ebitda estimates (~13% ahead of consensus) with the target price unchanged at Rs 255/share (10x Mar’22E EV/E). ACEM currently trades at an attractive valuation of 8.3x CY21E EV/E (for consolidated capacity of ~66mnte). Maintain buy.

ACEM’s cost optimisation initiatives under programme ‘I can’ targets to achieve significant cost savings (at least 15-20% of CY19 Ebitda/te, in our view) via: unlocking efficiencies in procurement and supply chain (clinker factor reduction, decrease in spare inventory, source mix optimisation); reducing distribution costs (reduction in primary and secondary freight, higher direct despatches, warehousing cost rationalisation); and fixed-cost rationalisation (via renegotiating contracts and curtailing a few expenses).

Besides, ACEM plans to set up WHRS plants at Darlaghat and Bhatpara (19.5MW at each location) at a capex of Rs 3.8bn by Q4CY21. Subsequently, the company may set up WHRS plants at Maratha and Ambujanagar in addition to solar plants totalling 40MW. Railway sidings project at capex of Rs 2.1bn at Rabriyawas, Rajasthan, and underground mining at Gare- Palma coal block (at Rs3.6bn) are expected to be completed over next two years.

ACEM-ACC likely achieved maximum volume swaps and more than doubled synergies during Jun’20 (up from Rs 60mn-70mn p.m. during H2CY19) via network optimisation and better realisation, to be shared almost equally.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Sensex, Nifty fall for second day straight; Pharma stocks beat market blues, Natco Pharma jumps 14%
2Global shares mixed amid worries on coronavirus, economy
3Chemcon Speciality Chemicals sets IPO price band at Rs 338-340 a share; issue to open on September 21