Ambuja Cements, an Adani Group company, has been given a buy rating by ICICI Direct for 12 months for a target price of Rs 610, implying potential gains of over 15% from the current price levels.
The company’s Q2 results remained below estimates with net revenues reported 13.4% higher year on year (YoY) at Rs 3670.4 crore but it declined sequentially. EBITDA margins were down 885 basis points (bps) quarter on quarter (QoQ) to 8.3% (lower than our estimate of 12.3%), led by higher power & fuel expenses (up 63% YoY, 17.5% QoQ). PAT declined 68.7% YoY, 86.8% QoQ to Rs 137.9 crore due to lower margins, noted the brokerage.
Nevertheless, as the company commands a strong brand, cost efficiencies as well as a healthy balance sheet, the brokerage sees the cement major to post healthy revenue growth in CY21-23E despite high base.
Further, its stock performance going ahead shall be triggered by 3 factors:
Plans of capacity expansion to around 140 MT in the next five years. The new clinker capacity at Marwar Rajasthan (1.8 MT cement, 3 MT clinker) and GU in Punjab (1.5 MT) is likely to come on stream by end of CY23 while capacity expansion (7 MT cement, 3.2 MT clinker) in the east (capex of Rs 3,500 crore) is likely to get completed by Q4CY24E.
Strong balance sheet will also drive the company’s future growth. Also, the group’s exposure to energy and logistics will help them improve cost dynamics and gain supply chain efficiencies.
The brokerage valuing the stock at 21x CY23E EV/EBITDA has set a target price of Rs 610 per share.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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