Ambuja Cements Q2CY22 Results impact: Brokerages maintain hold/neutral rating on stock – here’s why

Ambuja Cements Q2 Results impact: Cement major Ambuja Cements reported encouraging results on the volume and revenue front during the second quarter of the calendar year 2022. However, it disappointed on EBITDA (earnings before interest, taxes, depreciation, and amortization) front on the back of the higher cost of power and fuel. 

Amid mixed Q2 earnings, the stock is trading volatile and has slipped nearly 1 per cent to Rs 367 per share on the BSE intraday against a 1.37 per cent rise in the BSE Sensex at around 11:45 AM. 

Several brokerages, in this regard, are skeptical on the cement stock with the majority of them giving either Hold/ Neutral or Reduce rating in the near term. However, they are bullish on the long-term story of the company. 

Axis Securities  

We expect Volume/Revenue/EBITDA/Adjusted PAT CAGR of 8%/9%/4%/4% from CY21-CY23E as we factor in the impact of higher costs on the company’s margins and revise our estimates. The stock is currently trading at 20x and 14x its CY22E and CY23E EV/EBITDA.  

We value Ambuja Cements at 14x CY23E EV/EBITDA (including Ambuja's stake in ACC with no holding company discount) to arrive at a target of Rs 365 apiece, implying a downside of 2% as we attach a lower value to Ambuja’s stake in ACC Limited and change rating on the stock from Buy to Hold. 

JM Financial  

We expect power and fuel costs to remain elevated in Q3, as the company maintains an inventory of 30-45 days. Incremental efficiencies are expected to be brought in through WHR/RE capacities (25-28% of energy from WHR), ramp up in AFR usage (target of 25%), and increased blending. We continue to maintain Hold with a revised target price of Rs 350 per share. 

Motilal Oswal 

Ambuja Cement is well-placed to pursue growth opportunities with net cash of Rs 43.4 bn in CY23E. Historically, the company has been a laggard in capacity expansion against other relevant players in the industry.  

We expect the company’s EBITDA/profit to grow at 2%/4% CAGR over CY21-23. The stock trades at 15.2x CY23E EV/EBITDA. We value Ambuja Cements at 13x Mar’24 EV/EBITDA and assign a 10% holding company discount for its holding in ACC to arrive at a target price of Rs 350 per share. We maintain our Neutral rating on the stock. 

Kotak Institutional Equities  

We believe lower coal inventory and lower linkage supply have impacted Holcim group companies more than peers. Commodity price deflation would aid in stronger demand recovery and ease cost pressures for cement producers post-monsoon. Ambuja Cement has outperformed peers amid the upcoming open offer and sees a limited upside. Maintain Reduce at a target of Rs 345 per share.