Adani Group's Ambuja Cements experienced a nearly 4% increase in its stock following a five-fold year-on-year Q3 profit surge to ₹644 crore ($8.6 million), even though it underperformed Q2 FY24 revenue, margin, and EBITDA forecasts. Despite the shortfall, Citi has maintained a buy recommendation for Ambuja's stock, adjusting the target price from Rs 535 to Rs 500, suggesting a potential 23% growth.
The prediction is based on Adani's capacity doubling strategy, with capital expenditure focused on Ambuja and expected cost efficiencies. Should an ACC merger occur, a favorable swap ratio is anticipated, according to Citi. However, Morgan Stanley has retained an equal-weight stance due to lower than expected Q2 EBITDA, setting a target price of Rs 390.
In addition to the Q3 profit increase, Ambuja reported revenue of ₹3,969.8 crore ($530 million) for the September quarter. Despite surpassing profit estimates, the company's revenue, margin and both standalone and consolidated Q2 EBITDA fell short of expectations.
While Citi's buy call is influenced by Adani's capacity expansion plans and expected cost efficiencies leading to Rs 1,400-1,500/t EBITDA improvement, it also anticipates a potential favorable swap ratio in an ACC merger. However, the firm expects the stock to be range-bound in the near term pending clarity on grinding capacities alignment with clinker.
Ambuja has outlined ambitious growth plans under new management to reclaim lost market share by targeting 140 MTPA (Million Tonnes Per Annum) by FY 2027-28. The plan includes adding 14MTPA Grinding Units (GU) and 12.75MTPA clinker units with a capital expenditure outlay of Rs 70 billion ($935 million), acquiring Sanghi Industries, and increasing console capacity to 101MTPA. The execution of these initiatives is considered key to achieving these targets. Yes Securities has highlighted these growth plans, underscoring the company's ambition.
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