Ambuja Cements targets cost savings as capacity expands to 119 mtpa

Investment View and Valuation

ICICI Direct Research’s July 29, 2026 result update identifies cost efficiency as the central investment metric for Ambuja Cements. The broker maintains a HOLD rating and a target price of Rs 480, valuing the company at 15 times FY28E EV/EBITDA.

Ambuja Cements, part of the Adani Group, is a pan-India cement manufacturer with consolidated cement capacity of about 109 mtpa, including Sanghi Industries, Penna Cement and Orient Cement.

Q1 FY27 Financial Performance

Reported Q1 FY27 operating income was Rs 9,500 crore, down 7.7 per cent year-on-year and 13.0 per cent quarter-on-quarter. The decline reflected an 8.0 per cent year-on-year reduction in sales volume, while blended realisations were flat year-on-year.

EBITDA margin declined 233 basis points year-on-year to 16.7 per cent as total cost per tonne rose 3.2 per cent year-on-year, driven by higher power and fuel costs and other costs. Reported PAT declined 30.9 per cent year-on-year to Rs 577 crore.

Volume Strategy and Demand Outlook

Management retained its FY27E sales-volume growth guidance of about 8 per cent, implying volumes of about 80 mtpa. Growth is expected to be supported by infrastructure spending, housing demand and recently commissioned capacities.

The company’s value-over-volume approach involved reducing lower-margin non-trade sales. Trade volumes fell 2 per cent year-on-year in Q1 FY27, compared with a 21 per cent fall in non-trade volumes. Trade sales represented 78 per cent of total volumes, while premium products accounted for 34 per cent of trade sales. Capacity utilisation was about 65 per cent in Q1 FY27, compared with about 70 per cent as of March 2026. ICICI Direct estimates consolidated volume growth of about 7 per cent CAGR over FY26 to FY28E.

Capacity Expansion and Capital Expenditure

Ambuja Cements is progressing towards consolidated capacity of 119 mtpa by the end of FY27, up from 109 mtpa. Projects are under way at Jodhpur, Dahej, Kalamboli, Warisaliganj, Bathinda and Maratha.

Management’s longer-term target is 155 mtpa, with additions of about 8-10 mtpa annually and consolidated utilisation of 70-75 per cent. About 3.5 mtpa will remain temporarily shut for nearly six months for modernisation and integration.

Orient Cement was operating at about 87 per cent utilisation with healthy margins, while Penna Cement requires investment in its channel network to improve utilisation.

Cost Efficiency and Profitability Outlook

The broker expects profitability to improve through acquired-asset synergies and cost initiatives. Management targets a further Rs 130-150 per tonne reduction in operating cost, to about Rs 4,250 per tonne by FY27-end and about Rs 4,000 per tonne by FY28-end.

The key cost-reduction drivers include:

• Greater use of green energy.
• Long-term fly ash sourcing.
• A lower clinker factor.
• Logistics savings and lower lead distance.
• Premiumisation and operating leverage.

Green-power share was about 28 per cent during Q1 FY27 and is targeted at 35 per cent by FY27-end. Management also targets alternative-fuel usage of 12-15 per cent in FY27E. Coal blocks are expected to become operational over about 30 months.

ICICI Direct forecasts EBITDA per tonne of Rs 1,037 in FY28E, versus Rs 874 in FY26. The broker has largely maintained its FY27E and FY28E revenue and EBITDA estimates, while marginally reducing its volume CAGR estimate and increasing its FY28E EBITDA per tonne estimate.

Key Risks

• A slowdown in demand.
• Delays in capacity expansion.
• Higher commodity prices.
• Intense competition.