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The June-quarter earnings of Ambuja Cement Ltd were impressive. Like its peers ACC Ltd and UltraTech Cement Ltd, the company reported better-than-anticipated realizations, and cost curbs gave a boost to its operating performance.

At 5,251 per tonne, realizations improved 5% sequentially; firm cement prices and higher sales of value-added products aided realization growth during the quarter.

Despite the spike in input costs, Ambuja’s ‘ICAN’ initiatives and master supply agreement with ACC resulted in better cost control. Consequently, standalone Ebitda margin hit a multi-quarter high of 28.5%. Ebitda is short for earnings before interest, tax, depreciation and amortization.

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But analysts say the company’s shares factor in these positives. “Ambuja’s Q2 performance was good, but its margins are likely to compress in the second half. The stock’s recent outperformance prices in cost-efficiency benefits," Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report.

Besides, there are concerns about the company’s long-term growth prospects. Ambuja’s long-pending and delayed expansion in Rajasthan is likely to be completed in the next quarter. Analysts say that despite this, capacity constraints would remain a problem.

“The capacity expansion in Rajasthan, which is happening after a long time, is not enough to sustain higher-than-industry volume growth or regain lost market share," said Nirmal Bang Securities Ltd analysts.

Due to the lack of capacity growth, Ambuja has lost 250 basis points volume market share at an all-India level in the past 10 years, said analysts at Motilal Oswal Financial Services Ltd. Its market share currently stands at 7%, they add. One basis point is one-hundredth of a percentage point.

Ambuja Cement’s management recently announced its intent to boost capacity to 50 million tonnes per annum, but further details are awaited.

Meanwhile, on a one-year forward EV/Ebitda basis, the Ambuja Cement stock is trading a multiple of 11 times, shows Bloomberg data. EV is short for enterprise value. This is lower than Shree Cement and UltraTech’s valuation multiples of 22 times and 18 times, respectively.

Since the utilization of cash on the balance sheet is not directed towards growth, Ambuja has to do more to command a better valuation, Nirmal Bang’s analysts say.

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