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Earnings upgrades drive Ambuja Cements shares up 10%

Adani Family, through Endeavour Trade and Investment Ltd, a special purpose vehicle had announced successfully completion of the acquisition of Ambuja Cements Ltd and ACC Ltd on Friday. (Photo: Mint)Premium
Adani Family, through Endeavour Trade and Investment Ltd, a special purpose vehicle had announced successfully completion of the acquisition of Ambuja Cements Ltd and ACC Ltd on Friday. (Photo: Mint)

  • ACC and Ambuja, historically, have been a laggards in capacity additions, with their installed capacities growing at a CAGR of meagre 2% over FY11-22, while peers saw a 6-13% CAGR in the same period

MUMBAI: Shares of Ambuja Cements surged more than 10% in early deals on on Monday on the National Stock Exchange to hit a fresh 52-week high of 572 apiece. The rally was driven by a 20,000 crore infusion into the company the new board.

Adani Family, through Endeavour Trade and Investment Ltd, a special purpose vehicle had announced successfully completion of the acquisition of Ambuja Cements Ltd and ACC Ltd on Friday. The board of the company had thereafter approved an infusion of Rs20,000 crore into Ambuja by way of preferential allotment of warrants.

Analysts at Motilal Oswal Financial Services said that ACC Ltd. and Ambuja Cements are net cash positive companies with a cumulative cash balance of 8,400 crore (as of end June’22). The infusion 20,000 crore can help the group boost its cement capacities by 70mtpa (25mtpa inorganic expansion and 45mtpa organic expansion) by CY26E without leveraging the balance sheet. Mtpa stands for million tonne per annum

ACC and Ambuja with combined capacities of about 67.5 mtpa are the second largest cement manufacturers in the country. The new promoters plan to make it the most profitable cement manufacturer too.

Both the companies, however, had seen slower pace of capacity expansion earlier, whereas peers such as UltraTech and Shree Cement had been aggressively adding capacities.

During FY11-22, Ambuja Cements and ACC’s grinding capacities increased at a CAGR of 2% each, while most relevant peers saw a capacity growth of 6-13% in the same period, pointed out analysts at Motilal Oswal Financial Services. Lower capacity additions led to market share loss for both these companies between CY10-16 as volume growth remained stagnant in the period.

The aggressive expansions will drive earnings growth as company also undertakes various measures for profitability improvement. The group synergy benefits should start coming in from the December quarter and accelerate over next one to three years, said analysts at Jefferies India Pvt Ltd. Jefferies have raised consolidated Ebitda estimates for Ambuja by 20% and 30% for FY24 and FY25 on higher vols and Ebitda per tonne assumption.

 

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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