Ambuja Cements cost optimisation and capacity expansion underpin margin recovery outlook

Investment View and Valuation

Motilal Oswal Financial Services Limited retained its Buy recommendation on Ambuja Cements following its July 28, 2026 results update, as 1QFY27 operating performance was broadly in line with expectations. The broker identifies cost optimisation as the principal route to margin recovery. Improvement in the cost curve, capacity utilisation and volume growth, integration of acquired assets, and timely completion of expansion projects remain the key variables to monitor.

Motilal Oswal largely maintained its FY27 and FY28 estimates. It forecasts FY26-28 consolidated revenue, EBITDA and PAT compound annual growth of around 6%, 14% and 11%, respectively, led by around 6% volume growth. The broker estimates EBITDA per tonne of Rs 839 in FY27 and Rs 1,035 in FY28, against Rs 887 in FY26.

The broker values Ambuja Cements at 16 times FY28E EV/EBITDA to derive a target price of Rs 500, versus the stock's then trading multiples of 18 times FY27E and 14 times FY28E EV/EBITDA. Execution of cost savings, demand and volume recovery, acquired-asset integration and expansion commissioning remain central to the investment thesis.

1QFY27 Financial and Operating Performance

Ambuja Cements reported consolidated 1QFY27 revenue of Rs 9,500 crore, EBITDA of Rs 1,590 crore and adjusted PAT before minority interest of Rs 580 crore. These declined around 8%, 19% and 40% year on year, respectively. Revenue was 6% below Motilal Oswal's estimate, while EBITDA was 4% above and adjusted PAT was 21% above estimate, aided by lower depreciation and an effective tax rate.

Reported EBITDA per tonne was Rs 929, down around 13% year on year but around 9% above the broker's estimate. Adjusted for gains on the sale of renewable power, EBITDA per tonne was Rs 850-860. Operating margin contracted 2.3 percentage points year on year to around 17%. Operating cost per tonne rose around 2% year on year, with other expense per tonne increasing around 10%, although total cost was lower than the broker expected. Renewable power sales added Rs 60-70 per tonne to EBITDA.

The consolidated cash balance was Rs 840 crore, compared with Rs 1,770 crore at March 2026 and Rs 10,130 crore at March 2025.

Management Priorities and Volume Outlook

Management said it is prioritising profitable growth rather than volume. Trade sales increased to around 78% of total volume from 74% a year earlier, while low-margin non-trade business at acquired assets was reduced. This approach constrained near-term capacity utilisation but is intended to improve profitability.

Management is targeting volume growth of around 8% year on year in FY27. Trade volume fell around 2% year on year in 1QFY27, compared with a 21% decline in non-trade volume. However, management cited healthy subsequent demand momentum and around 8% year-on-year trade-volume growth in July.

Cost Optimisation and Margin Recovery

Management attributed the quarter-on-quarter cost improvement to a higher trade mix, a lower clinker factor, logistics optimisation and fixed-cost efficiency. The clinker factor improved to around 64% from 67% a year earlier, while the blended cement share rose to around 85% from 80%.

Green-power capacity reached 973 MW and waste-heat recovery capacity reached 228 MW. These initiatives reduced average power cost by around Rs 1 per kWh to Rs 4.9 per kWh. Ambuja Cements is targeting FY27 operating cost of around Rs 4,250 per tonne despite elevated fuel costs.

The company expects shorter lead distances, logistics initiatives, additional green power, lower heat and power consumption, and lower other operating expenses to generate cumulative savings of Rs 130-150 per tonne. Alternative fuels and raw-material substitution are targeted at around 12-15% in FY27, compared with around 7% currently.

Capacity Expansion and Acquired Assets

Ambuja Cements had consolidated capacity of around 109 million tonnes per annum and expects capacity to reach 119 million tonnes per annum by FY27-end. Trial runs had commenced at grinding units in Prayagraj, Bhatinda and Jodhpur. Kalamboli, Warisaliganj and the Maratha clinker line are targeted for commissioning in 2HFY27.

Capex is pegged at Rs 6,500 crore for growth and efficiency projects, of which Rs 1,500-1,600 crore was spent in 1QFY27. Orient Cement assets were operating at around 87% utilisation with healthy profitability. Penna Cement is the principal operational-improvement opportunity, while Sanghi is undertaking a roughly Rs 600 crore jetty expansion to improve clinker logistics.

Key Variables to Monitor

• Execution of planned cost savings and progress toward the FY27 operating-cost target of around Rs 4,250 per tonne.
• Recovery in demand, trade volumes and overall capacity utilisation.
• Integration and operational improvement at acquired assets, particularly Penna Cement.
• Commissioning of the planned grinding, clinker and other expansion projects in 2HFY27.
• Improvement in clinker logistics, including the Sanghi jetty expansion.