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Ambuja Cements Ltd continues to focus on expansion to address concerns over the company’s capacity constraints.

At its recently-held annual general meeting (AGM), the company’s management provided updates about growth plans. It said an upcoming facility in Rajasthan will enhance Ambuja’s clinker capacity by 3 million tonnes per annum (mtpa). This greenfield integrated plant, which would improve sales by 5mtpa, will commence operations by Q32021. Ambuja follows the calendar year as financial year.

However, the takeaway for investors was Ambuja’s ambition to boost its overall capacity from the current 35mtpa to 50mtpa. The intention is positive, but the lack of a proper time frame is a dampener, analysts say.

Lagging behind
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Lagging behind

“The company’s target looks ambitious, especially when no details are shared about how it will achieve it. At the time when its peers are aggressively expanding, until a proper plan is put in place, it is difficult to gauge how soon its market share loss will be arrested," said an analyst with a domestic brokerage firm requesting anonymity.

After hitting a new 52-week high of 329 on the National Stock Exchange (NSE) on 9 April, the Ambuja stock has been under pressure. In the past two trading sessions, the stock has lost around 4.5%.

Concurring, analysts at Kotak Institutional Equities said that the company’s management fell short of sharing any timelines and state of approvals with respect to its 50mtpa target.

“In the current strong growth phase of the industry, we believe Holcim India would continue to lose market share to much more aggressive peers," it said in a report on 12 April. Holcim India is the parent company of ACC Ltd and Ambuja Cements Ltd.

With improving demand outlook, competitors and pan-India focused companies Shree Cement Ltd and UltraTech Cement Ltd have recently announced fresh expansions.

Analysts say the run-up in Ambuja’s shares factors in the progress of its capacity expansions. So far this calendar year, the stock has risen by around 21%. But bridging the valuation gap with peers would take time, analysts add.

On a one-year forward, EV/Ebitda basis, Ambuja is trading at a multiple of eight times, much lower than UltraTech’s 15 times and Shree’s 21 times. EV stands for enterprise value. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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