Shares of large-cap cement maker Ambuja Cements Limited, The National Stock Exchange remained flat in Wednesday’s trade after a mixed earnings performance in the June quarter (Q2CY22). The company follows an accounting year from January to December.
On a standalone basis, its EBITDA declined 29% year-over-year (y-o-y) and 13% sequentially, impacted by higher energy and freight costs. Ebitda is short for earnings before interest, taxes, depreciation and amortization. Power and fuel costs increased 46% year-on-year in Q2CY22.
Sales volume grew 15% annually to 7.39 million tonnes (MT), aided by the ramp up of the recently commissioned Marwar Mundwa plant. Premium cement contributed over 16% of total business sales in the June quarter. Thanks to this, the company saw a gradual and year-on-year improvement in compounded receipts.
Ambuja Cements is setting up a 1.5 MTPA (million tonne per annum) grinding capacity in Punjab, 3.2 MTPA clinker capacity in Chhattisgarh and 7 MTPA grinding capacity in Eastern India. It is also installing waste heat recovery systems in several plants. Once the ongoing expansion is complete, its total capacity will increase to 40 million tonnes from the current 31.5 million tonnes. In addition, the company plans to achieve 50 million tonnes of capacity over the next few years by expanding and removing bottlenecks.
The expansion bodes well for the company’s long-term volume growth outlook, but in the near term, another trigger will dictate the stock’s course.
“Given the ongoing acquisition process and open offer by the Adani Group, we believe that the stock will remain capped at close to the offer price. 385,” said analysts at Nirmal Bang Institutional Equities.
Also, given the company’s performance in recent quarters and better control over costs by competitors, the stock’s valuation seems expensive.
Analysts at Prabhudas Lilladher note that on an incremental basis, there is no meaningful scope for further cost reduction except for power cost savings due to an increase in the share of waste heat recovery plants. “As the valuation remains unattractive with an EV/EBITDA of 13.5x CY23e, there are better opportunities available in the space and the stock has a strong underperformer than its peers,” the domestic brokerage house said in a report. EV is short for Enterprise Value.
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