Ambuja stock dips 4%, ACC hits new 1-year low after Adani unveils goal blueprint. Is there more steam?
3 min read 28 Mar 2023, 03:09 PM ISTAdani announced that the group plans to double capacity to 140 MTPA from the current 67.5 MTPA going forward in the cement business (Ambuja and ACC). Also, it expects net sales to rise to ₹70,000 crore by FY28 fiscal compared to ₹29,700 crore so far in FY23. EBITDA margins are trajected to expand from 19% to 25% in FY28.
PremiumAdani's cement stocks on Tuesday recorded a steep selloff. Both Ambuja Cements and ACC stock have dipped by around 4% each. The slippery slope in Ambuja and ACC comes after the Gautam Adani-backed group released its blueprint for future goals in the cement business. The conglomerate plans to double capacity, focus on high growth states, ramp up demand, increase shares in various verticals, and diversify asset footprint were some of the few major goals.
Ambuja stock traded near its day low currently. At the time of writing, Ambuja Cements traded at ₹357 apiece down by ₹12.75 or 3.45% on BSE. The stock has shed at least 4.2% with an intraday low of ₹354.20 apiece earlier in the day. The company's market cap is over ₹71,036 crore as of now.
Meanwhile, ACC stock slipped by ₹73.65 or 4.4% to trade at ₹1,611.15 apiece on BSE. The stock touched a new 52-week low of ₹1,593.50 apiece earlier in the day.
Ambuja Cements is the largest stock of Adani in the cement space. While Adani holds a majority stake in ACC through Ambuja.
As of December 31, 2022, the Group holds s 63.15% stake in Ambuja Cement which in turn owns 50.05% in ACC Limited. Adani directly owns a 6.64% stake in ACC.
In the investors presentation that the group released on March 27, Adani announced that the group plans to double capacity to 140 MTPA from the current 67.5 MTPA going forward in the cement business (Ambuja and ACC). The group has set ₹7,000 crore capital expenditure for doubling capacity 140 MTPA including additional capacity unlocking through debottlenecking. Accordingly, Adani expects net sales to rise to ₹70,000 crore by FY28 fiscal compared to ₹29,700 crore so far in FY23.
Furthermore, Adani expects aims EBITDA per ton to rise to ₹1,470 by FY28 from the current ₹1,000. Also, EBITDA margins are trajected to expand from 19% to 25% in FY28.
Also, the group plans a well-diversified asset footprint to cater pan-India cement demand (incl. captive coal mine – Gare Palma/Dahegaon Gowari). Further, Adani aims to achieve the lowest cost to serve by leveraging Group’s vast experience and unmatched adjacencies in all critical areas such as group infrastructure and digital platform, energy cost, and supply chain.
On the overall industry level, Adani expects strong volume growth on the back of projected GDP growth and proposed infra spend in the budget. Further, the group believes that cement per capita consumption offers good headroom for growth (global average of 525 kg per person vs 250 kg in India).
Adani expects the demand-capacity gap to remain narrow (demand growth of ~7% and capacity growth of ~6% over FY23-FY28) for the industry. While capacity utilization is seen in the range of 70% -75%. Also, it expects price realisations to remain healthy.
According to Emkay Global, the Adani Group filed an investor presentation with the stock exchanges, unveiling its roadmap for capacity expansion and cost efficiencies. Management: i) re-iterated its guidance of doubling capacity to 140mt by FY28 (16% CAGR), at a CAPEX of Rs460 billion (USD77/ton) to be funded via internal accruals; ii) stated its target of achieving consolidated EBITDA of Rs175 billion, with EBITDA/ton of Rs1,470 by FY28; iii) aims for Rs300-400/ton EBITDA improvement in FY24, through operational efficiencies. The Group has also outlined a few projects totaling 24mt cement capacity expansion (vs 11mt announced earlier), aimed to be commissioned in the next 2-3 years.
Also, the brokerage outlined that the Group is also looking at various sales & marketing initiatives, like i) focus on nine high-growth states (for cement): Rajasthan, Punjab, HP, UP, J&K, Bihar, Jharkhand, Maharashtra, and Karnataka; ii) leveraging group adjacencies to drive premium-quality green cement volumes; iii) focus on special application premium cement (22% of trade sales); iv) increase in the share of B2B segment; v) increase in productivity of the technical services team to convert IHB leads; and vi) emphasis on digitization initiatives.
In its research note, Emkay said, "We are awaiting clarity on clinker capacity expansion, equipment ordering, and conversion of warrants."
In regards to Adani's cement stocks, Emkay's note concluded, "we have a HOLD rating on Ambuja Cements, with target price of Rs425/share, based on 15x FY25E EV/E."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
